SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). 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 April 25, 2003 ---------------------------- --------------------------------- Common Stock, $.10 par value 7,394,327 shares
TOMPKINS TRUSTCO, INC. FORM 10-Q INDEX <TABLE> <CAPTION> PART I -FINANCIAL INFORMATION PAGE ---- <S> <C> Item 1 - Financial Statements (Unaudited) Condensed Consolidated Statements of Condition as of March 31, 2003 and December 31, 2002 3 Condensed Consolidated Statements of Income for the three months ended March 31, 2003 and 2002 4 Condensed Consolidated Statements of Cash Flows for the three ended March 31, 2003 and 2002 5 Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2003 and 2002 6 Notes to Unaudited Condensed Consolidated Financial Statements 7-9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10-16 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 16 Item 4 - Controls and Procedures 17 Average Consolidated Balance Sheet and Net Interest Analysis 18 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 19 Item 2 - Changes in Securities and Use of Proceeds 19 Item 3 - Defaults on Senior Securities 19 Item 4 - Submission of Matters to a Vote of Securities Holders 19 Item 5 - Other Information 19 Item 6 - Exhibits and Reports on Form 8-K 19 SIGNATURES 20 Certification of Chief Executive Officer 21 Certification of Chief Financial Officer 22 EXHIBIT INDEX 23 </TABLE> 2
PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (In thousands, except share data) <TABLE> <CAPTION> (Unaudited) As of As of ASSETS 03/31/2003 12/31/2002 ----------- ----------- <S> <C> <C> Cash and noninterest bearing balances due from banks $ 60,158 $ 53,898 Interest bearing balances due from banks 0 10,000 Federal funds sold 325 400 Available-for-sale securities, at fair value 580,133 493,780 Held-to-maturity securities, fair value of $42,030 at March 31, 2003 and $40,260 at December 31, 2002 40,311 38,722 Loans and leases net of unearned income and deferred costs and fees 1,004,471 995,346 Less: Reserve for loan/lease losses 11,990 11,704 - --------------------------------------------------------------------------------------------------------------- Net Loans/Leases 992,481 983,642 Bank premises and equipment, net 27,174 27,111 Corporate owned life insurance 21,634 21,382 Goodwill 10,757 10,684 Intangible assets 3,332 3,422 Accrued interest and other assets 27,552 27,162 - --------------------------------------------------------------------------------------------------------------- Total Assets $ 1,763,857 $ 1,670,203 =============================================================================================================== LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking, savings and money market $ 718,090 $ 710,753 Time 392,625 379,603 Noninterest bearing 245,177 249,929 - --------------------------------------------------------------------------------------------------------------- Total Deposits 1,355,892 1,340,285 Federal funds purchased and securities sold under agreements to repurchase 120,386 77,843 Other borrowings 116,790 81,930 Other liabilities 19,607 18,059 - --------------------------------------------------------------------------------------------------------------- Total Liabilities $ 1,612,675 $ 1,518,117 - --------------------------------------------------------------------------------------------------------------- Minority interest in consolidated subsidiaries 1,523 1,489 Shareholders' equity: Common Stock - par value $.10 per share: Authorized 15,000,000 shares; Issued: 7,394,127 at March 31, 2003; and 7,465,286 at December 31, 2002 740 747 Surplus 42,812 45,997 Undivided profits 100,380 96,722 Accumulated other comprehensive income 6,193 7,597 Treasury stock, at cost - 24,529 shares at March 31, 2003, and December 31, 2002 (466) (466) - --------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity $ 149,659 $ 150,597 - --------------------------------------------------------------------------------------------------------------- Total Liabilities, Minority Interest in Consolidated Subsidiaries and Shareholders' Equity $ 1,763,857 $ 1,670,203 =============================================================================================================== </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 ------------------------- 03/31/2003 03/31/2002 ----------- ----------- <S> <C> <C> INTEREST AND DIVIDEND INCOME Loans $ 16,891 $ 16,766 Interest on balances due from banks 15 0 Federal funds sold 13 56 Available-for-sale securities 5,476 5,645 Held-to-maturity securities 394 286 - --------------------------------------------------------------------------------------------------------------- Total Interest and Dividend Income 22,789 22,753 - --------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits: Time certificates of deposits of $100,000 or more 754 903 Other deposits 3,809 4,613 Federal funds purchased and securities sold under agreements to repurchase 620 639 Other borrowings 1,062 1,021 - --------------------------------------------------------------------------------------------------------------- Total Interest Expense 6,245 7,176 - --------------------------------------------------------------------------------------------------------------- Net Interest Income 16,544 15,577 - --------------------------------------------------------------------------------------------------------------- Less: Provision for loan/lease losses 540 376 - --------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Loan/Lease Losses 16,004 15,201 - --------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME Trust and investment services income 1,000 1,079 Service charges on deposit accounts 1,679 1,315 Insurance commissions and fees 1,270 1,177 Other service charges 1,330 1,098 Increase in cash surrender value of corporate owned life insurance 252 311 Other income 535 330 Net realized gain on available-for-sale securities 59 0 - --------------------------------------------------------------------------------------------------------------- Total Noninterest Income 6,125 5,310 - --------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSES Salary and wages 5,987 5,430 Pension and other employee benefits 1,833 1,574 Net occupancy expense of bank premises 896 736 Furniture and fixture expense 822 817 Amortization of intangible assets 190 238 Other operating expense 3,499 3,833 - --------------------------------------------------------------------------------------------------------------- Total Noninterest Expenses 13,227 12,628 - --------------------------------------------------------------------------------------------------------------- Income Before Income Tax Expense and Minority Interest in Consolidated Subsidiaries 8,902 7,883 - --------------------------------------------------------------------------------------------------------------- Minority interest in consolidated subsidiaries 33 34 Income Tax Expense 2,984 2,644 - --------------------------------------------------------------------------------------------------------------- Net Income $ 5,885 $ 5,205 =============================================================================================================== Basic Earnings Per Share $ 0.79 $ 0.70 Diluted Earnings Per Share $ 0.78 $ 0.69 =============================================================================================================== </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Three months ended ------------------------ 3/31/2003 3/31/2002 ---------- ---------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 5,885 $ 5,205 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan/lease losses 540 376 Depreciation and amortization premises, equipment, and software 760 735 Amortization of intangible assets 190 238 Earnings from corporate owned life insurance (252) (298) Net amortization on securities 887 376 Net realized gain on available-for-sale securities (59) 0 Net gain on sale of loans (500) (209) Proceeds from sale of loans 16,372 13,565 Loans originated for sale (15,543) (13,028) ISOP/ESOP shares released for allocation 0 113 Increase in accrued interest receivable (382) (196) Increase (decrease) in accrued interest payable 47 (564) Other, net 2,377 532 - --------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 10,322 6,845 - --------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from maturities of available-for-sale securities 83,826 53,939 Proceeds from sales of available-for-sale securities 59 22 Proceeds from maturities of held-to-maturity securities 4,511 3,663 Purchases of available-for-sale securities (173,390) (140,780) Purchases of held-to-maturity securities (6,116) (6,624) Net increase in loans (9,708) (5,179) Purchases of bank premises and equipment (778) (934) Redemption of corporate owned life insurance 0 458 Net cash used in acquisitions (53) (21) - --------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (101,649) (95,456) - --------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase in demand, money market, and savings deposits 2,585 193,907 Net increase (decrease) in time deposits 13,022 (50,368) Net increase (decrease) in securities sold under agreements to repurchase and Federal funds purchased 42,543 (36,927) Increase in other borrowings 40,000 9,269 Repayment of other borrowings (5,219) (281) Cash dividends (2,227) (2,072) Common stock repurchased and returned to unissued status (3,479) (346) Net proceeds from exercise of stock options and related tax benefit 287 237 - --------------------------------------------------------------------------------------------------------- Net Cash Provided by Financing Activities 87,512 113,419 - --------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (3,815) 24,808 Cash and Cash Equivalents at beginning of Period 64,298 44,117 Total Cash & Cash Equivalents at End of Period $ 60,483 $ 68,925 ========================================================================================================= Supplemental Information: Cash paid during the year for: Interest $ 6,198 $ 7,740 Taxes 873 294 </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, 2002 $ 744 $ 45,456 $ 82,385 $ 3,039 ($ 466) ($ 86) $ 131,072 - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive Income: Net Income 5,205 5,205 Other comprehensive loss (2,291) (2,291) --------- Total Comprehensive Income 2,914 ========= Cash dividends ($0.28/Share) (2,072) (2,072) Exercise of stock options, and related tax benefit (10,342 shares, net) 1 236 237 Common stock repurchased and returned to unissued status (8,500 Shares) (1) (345) (346) ESOP shares committed to be released for allocation (3,449 shares) 102 11 113 - ---------------------------------------------------------------------------------------------------------------------------------- Balances at March 31, 2002 $ 744 $ 45,449 $ 85,518 $ 748 ($ 466) ($ 75) $ 131,918 - ---------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================== Balances at January 1, 2003 $ 747 $ 45,997 $ 96,722 $ 7,597 ($ 466) $ 0 $ 150,597 - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive Income: Net Income 5,885 5,885 Other comprehensive loss (1,404) (1,404) --------- Total Comprehensive Income 4,481 ========= Cash dividends ($0.30/Share) (2,227) (2,227) Exercise of stock options and related tax benefit (10,711 shares, net) 1 286 287 Common stock repurchased and returned to unissued status (81,870 shares) (8) (3,471) (3,479) - ---------------------------------------------------------------------------------------------------------------------------------- Balances at March 31, 2003 $ 740 $ 42,812 $ 100,380 $ 6,193 ($ 466) $ 0 $ 149,659 ================================================================================================================================== </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 the corporate parent to three community banks, Tompkins Trust Company ("Trust Company"), The Bank of Castile, and The Mahopac National Bank ("Mahopac National Bank"), which together operate 33 banking offices in local New York State market areas served by its subsidiary banks. Headquartered in Ithaca, New York, Tompkins is registered as a Financial 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 Tompkins Trust Company, a commercial bank that has operated in Ithaca and surrounding communities since 1836. Through its community banking subsidiaries, the Company provides traditional banking services. Tompkins offers trust and investment services through Tompkins Investment Services, a division of Tompkins Trust Company. The Company also offers insurance services through its Tompkins Insurance Agencies, Inc. ("Tompkins Insurance") subsidiary, an independent agency with a history of over 100 years of service to individual and business clients throughout western New York. Each Tompkins subsidiary operates with a community focus, meeting the needs of the unique communities served. 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 the application of certain accounting policies management is required to make assumptions regarding the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in the consolidated financial statements. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The accounting policy considered critical in this respect is the determination of the reserve for loan/lease losses. 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, 2003. The unaudited condensed consolidated financial statements should be read in conjunction with the Company's 2002 Annual Report on Form 10-K. The consolidated financial information included herein combines the results of operations, the assets, liabilities, and shareholders' equity of the Company and its subsidiaries. Amounts in the prior period's consolidated financial statements are reclassified when necessary to conform to the current period's presentation. All significant intercompany balances and transactions are eliminated in consolidation. 3. Earnings Per Share A computation of Basic Earnings Per Share ("EPS") and Diluted EPS for the three month periods ending March 31, 2003 and 2002, is presented in the table below. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- Weighted Per Three months ended March 31, 2003 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 $5,885 7,413,866 $0.79 Effect of dilutive securities 118,328 Diluted EPS Income available to common shareholders plus assumed conversions $5,885 7,532,194 $0.78 ========================================================================================================================= </TABLE> 7
<TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- Weighted Per Three months ended March 31, 2002 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 $5,205 7,411,335 $0.70 Effect of dilutive securities 128,898 Diluted EPS Income available to common shareholders plus assumed conversions $5,205 7,540,233 $0.69 ========================================================================================================================= </TABLE> 4. Comprehensive Income (Loss) Three months ended <TABLE> <CAPTION> (In thousands) 03/31/2003 03/31/2002 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> Net Income $ 5,885 $ 5,205 - ----------------------------------------------------------------------------------------------------------------- Net unrealized holding losses during the period (1,369) (2,291) Memo: Pre-tax net unrealized holding loss (2,281) (3,818) Reclassification adjustment for net realized gain on available-for-sale securities (35) 0 Memo: Pre-tax net realized gain (59) 0 - ----------------------------------------------------------------------------------------------------------------- Other Comprehensive Loss (1,404) (2,291) - ----------------------------------------------------------------------------------------------------------------- Total Comprehensive Income $ 4,481 $ 2,914 ================================================================================================================= </TABLE> 5. Recent Accounting Pronouncements ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS: In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 did not have a material effect on the Company's consolidated financial statements. ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146 effective January 1, 2003, did not have a material effect on the Company's financial statements. ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE, AN AMENDMENT OF SFAS NO. 123: In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-transition and Disclosure, an Amendment of SFAS No. 123. This statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plan. Accordingly, compensation expense is recognized only if the exercise price of the option is less than the fair value of the underlying stock at the grant date. SFAS No. 123 requires companies not using a fair value based method of accounting for stock options to provide pro forma disclosure of net income and earnings per share as if the fair value method of accounting had been applied. 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. 8
<TABLE> <CAPTION> Three months ended (in thousands except per share data) 3/31/03 3/31/02 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> Net income: As reported $5,885 $5,205 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 112 80 Pro forma $5,773 $5,125 - ---------------------------------------------------------------------------------------------------------------- Basic earnings per share: As reported $0.79 $0.70 Pro forma 0.78 0.69 - ---------------------------------------------------------------------------------------------------------------- Diluted earnings per share As reported $0.78 $0.69 Pro forma 0.77 0.68 ================================================================================================================ </TABLE> The per share weighted average fair value of the 1,000 stock options granted during the first three months of 2003 was $16.21. No stock options were granted during the first quarter of 2002. Fair values were arrived at using the Black Scholes option-pricing model with the following assumptions: 2003 2002 - -------------------------------------------------------------------------------- Risk-free interest rate 3.44% NA Expected dividend yield 3.00% NA Volatility 46.20% NA Expected life (years) 7.00 NA ================================================================================ In management's opinion the existing models do not necessarily provide a reliable measure of the fair value of its employee stock options because the Company's employee stock options have characteristics significantly different from those of traded options for which the Black-Scholes model was developed, and because changes in the subjective assumptions can materially affect fair value estimate. GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS TO OTHERS: In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation were applicable to guarantees issued or modified after December 31, 2002 and did not have a material effect on the Company's financial statements. CONSOLIDATION OF VARIABLE INTEREST ENTITIES: In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For public enterprises with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation applies to that enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The application of this Interpretation is not expected to have a material effect on the Company's financial statements. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. The Company did not have any disclosures required in these consolidated financial statements. 9
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, 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 ("Mahopac National Bank"), became subsidiaries of Tompkins. Effective January 1, 2001, the Company completed the acquisition of 100% 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. Tompkins Insurance has six offices located in the towns of Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia. Further details pertaining to the mergers and acquisitions are presented in Note 2 to the Company's 2002 Annual Report on Form 10-K. 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/lease 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 trust and investment services, including investment management accounts, custody accounts, trusts, retirement plans and rollovers, estate settlement, and financial planning. Tompkins Insurance primarily provides services consisting 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, 2002, 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. Critical Accounting Policies In the course of the Company's normal business activity, management must select and apply many accounting policies and methodologies that lead to the financial results presented in the consolidated financial statements of the Company. Some of these policies are more critical than others. Management considers the accounting policy relating to the reserve for loan/lease losses to be a critical accounting policy because of the uncertainty and subjectivity inherent in estimating the levels of allowance needed to cover probable credit losses within the loan portfolio and the material effect that these estimates can have on the Company's results of operations. While management's evaluation of the reserve for loan/lease losses as of March 31, 2003, considers the allowance to be adequate, under adversely different conditions or assumptions, the Company would need to increase the allowance. All accounting policies are important and the reader of the financial statements should review these policies, described in Note 1 of the Company's Form 10-K for the year ended December 31, 2002, to gain a greater understanding of how the Company's financial performance is reported. 10
RESULTS OF OPERATIONS For the quarter ended March 31, 2003, net income was $5.9 million, an increase of 13.1% over the same period in 2002. Diluted earnings per share was $0.78 for the first quarter of 2003, compared to $0.69 for the same period in 2002. The Company's key performance ratios remain strong. Return on average assets for the quarter ended March 31, 2003, was 1.40%, compared to 1.42% for the same period in 2002. Return on average shareholders' equity for the first quarter of 2003 was 15.89%, compared to 15.86% for the same period in 2002. Net Interest Income The attached Average Consolidated Balance Sheet and Net Interest Analysis illustrates the trend in average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each. The Company earned tax-equivalent net interest income of $17.1 million for the three months ended March 31, 2003, an increase of 6.6% over the same period in 2002. An increased volume of earning assets helped offset a decline in net interest margin in the current quarter. The net interest margin for the quarter declined from 4.80% in 2002, to 4.45% in 2003. A declining trend in interest rates has resulted in declines in both the yield on earning assets and the cost of interest-bearing liabilities. The yield on earning assets declined from 6.94% for the first three months of 2002, to 6.07% for the same period in 2003. The cost of interest-bearing liabilities declined from 2.62% to 1.97% over the same period. Average earning assets for the year-to-date period ended March 31, 2003, increased $202.3 million, or 14.9% over the same period in 2002. Growth in earning assets was concentrated in securities, residential real estate, and commercial lending products. Average securities (excluding changes in unrealized gains and losses on available-for-sale securities) increased by $101.1 million from the first three months of 2002. Growth in the securities portfolio includes a $26.7 million increase in average U.S. Government agency securities, and a $72.3 million increase in U.S. Government mortgage-backed securities. Application volume for residential mortgages over the past 12 months remained very strong, driven by a low interest rate environment. Despite $31.3 million in residential mortgage loan sales between March 31, 2002 and March 31, 2003, average residential real estate loans increased by $64.3 million as of March 31, 2003, when compared to the same period last year. Between March 31, 2002 and March 31, 2003, average balances for commercial real estate loans, commercial loans, and commercial leases increased by $19.3 million, $18.9 million, and $1.6 million, respectively. The combined average balances of these commercial loan products increased by 10.4% from the first quarter of 2002 to the first quarter of 2003. These commercial lending products represented 46.9% of average loans at March 31, 2003, compared with 47.6% of average loans at March 31, 2002. Management continues to emphasize commercial services, as these commercial loan products are typically attractive to the Company from a yield and interest rate risk management perspective. Core deposits (total deposits, less: brokered deposits, municipal money market deposits, and time deposits of $100,000 or more) supported the growth in average assets in 2003. Core deposits increased by $46.8 million or 4.7% from an average balance of $996.5 million for the first three months of 2002, to $1.0 billion for the same period in 2003. Core deposits represent the Company's largest and lowest cost funding source, with average core deposits representing 67.3% of average liabilities for the first three months of 2003. This compares to 73.9% for the same period in 2002. Non-core funding sources, which include time deposits of $100,000 or more, brokered deposits, municipal money market deposits, Federal funds purchased, securities sold under agreements to repurchase (repurchase agreements), and other borrowings provided additional sources of funding to support asset growth. Average balances on these non-core funding sources increased by $151.9 million between March 31, 2002 and March 31, 2003. The primary component of non-core funding sources at March 31, 2003 was municipal money market deposits with an average balance of $172.2 million. The cost of interest-bearing liabilities declined from 2.62% for the three months ended March 31, 2002, to 1.97% for the first three months of 2003. 11
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 $540,000 for the first three months of 2003, is up from $376,000 for the same period in 2002. The increase in the provision for loan/lease losses in 2003 is attributable to an increase in net charge-offs, an increase in the dollar volume of nonperforming loans, as well as continued growth in the loan portfolio. Net charge-offs were $254,000 for the first three months of 2003, compared to $218,000 in 2002. The reserve for loan/lease losses as a percentage of period end loans was 1.19% at March 31, 2003, and 1.18% at December 31, 2002. Noninterest Income Noninterest income is an important component of the Company's revenue mix. Noninterest income for the three months ended March 31, 2003, was $6.1 million, an increase of 15.3% over the same period in 2002. For the year-to-date period ended March 31, 2003, noninterest income represented 27.0% of total revenue, compared to 25.4% for the same period in 2002. 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. 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 nearly 40 states. Tompkins Investment Services' marketing efforts and staff serve clients in The Bank of Castile and Mahopac National Bank markets. Trends for new business in trust and investments services remain positive, although the general downward trend in national stock markets has caused earnings to decline in 2003, when compared to the prior year. Trust and Investment Services income was $1.0 million in the first three months of 2003, compared to $1.1 million in the first three months of 2002. The market value of assets managed by, or in custody of, Tompkins Investment Services was approximately $1.3 billion at March 31, 2003, up approximately 6.1% from December 31, 2002. Service charges on deposit accounts were $1.7 million for the three month period ended March 31, 2003, compared to $1.3 million for the same period in 2002. The increase in 2003 is largely due to the increase in deposit accounts and additional deposit related services. Service charges have also improved as a result of a new service (introduced in the first quarter of 2002), which automated overdraft payment decisions. The average dollar volume of noninterest-bearing accounts increased by 10.2%, or $22.5 million, from $221.7 million at March 31, 2002 to $244.3 million at March 31, 2003. Average total deposits were up 15.6% over the same period. Commission and fee income generated through Tompkins Insurance was $1.3 million for the first three months of 2003, up 7.9% from the $1.2 million for the same period last year. Tompkins Insurance primarily offers property and casualty insurance to individuals and businesses in western New York State. Rising premium costs instituted by underwriting insurance companies contributed to the growth in commissions and fees in 2003 over the same period in 2002. Income from card services, included in other service charges on the consolidated statements of income, continues to be an important source of revenue. The Company continues to expand its product offerings to better serve the needs of customers. Card services products include traditional credit cards, purchasing cards, debit cards, and merchant card processing. Income associated with card services was $793,000 for the three months ended March 31, 2003, an increase of approximately 23.0% from income of $644,000 for the first three months of 2002. The Company has corporate owned life insurance (COLI), which relates to life insurance and certain other benefits provided to certain senior officers of the Company and its subsidiaries. Increases in the cash surrender value of COLI are reflected as other noninterest income, net of the related mortality expense. Other noninterest income for the first three months of 2003 includes $252,000 of income relating to increases in COLI. This compares to $311,000 for the same period in 2002. The decrease in earnings in the first three months of 2003 compared to the same period in 2002 reflects lower returns on the insurance assets as a result of weak market conditions. The Company's average investment in COLI was $21.5 million for the three month period ended March 31, 2003, compared to $20.5 million for the same period in 2002. The tax-equivalent return on COLI was 7.82% for the first quarter of 2003, compared to 9.29% for the same period in 2002. 12
Residential loan volume has benefited from the historically low interest rate environment. As a result of the strong application volume, which included a high percentage of applications to refinance loans currently serviced by the Company, the volume of residential mortgage loan sales increased from $13.4 million in the first three months of 2002 to $15.9 million in 2003. Net gains from loan sales are included in other income and amounted to $500,000 in the first three months of 2003, compared to $209,000 for the same period in 2002. Noninterest Expenses Total noninterest expenses were $13.2 million for the three months of 2003, an increase of 4.7% over the same period in 2002. The increase in noninterest expense in the first three months of 2002 is largely due to higher personnel-related costs, which were up by 11.7%, or $816,000 million over the first three months of 2002. Personnel-related expenses comprise the largest segment of noninterest expense, representing approximately 59.1% of operating expense in the first three months of 2003. The increase in personnel-related expenses is attributable to a variety of factors including an increased number of employees, as well as higher benefit related costs for medical insurance and pensions. Average full time-equivalent employees were 534 in the first quarter of 2003, compared to 527 in the first quarter of 2002. Expenses related to bank premises and furniture and fixtures totaled $1.7 million for the first three months of 2003, an increase of 10.6% over the same period last year. A portion of the increase is attributable to the opening of a new Trust Company office in Cortland (December 2002) and a new Mahopac National Bank office in LaGrange (July 2002). Other operating expense amounted to $3.5 million in the first three months of 2003, compared to $3.8 million for the same period in 2002. Income Tax Expense The provision for income taxes provides for Federal and New York State income taxes. The provision for the three months ended March 31, 2003, was $3.0 million, compared to $2.6 million in 2002. The increased provision is primarily due to increased levels of taxable income. The effective tax rate for the first three months of 2003 and 2002 was 33.5%. FINANCIAL CONDITION The Company's total assets were $1.8 billion at March 31, 2003, representing an increase of $93.7 million over total assets reported at December 31, 2002. Asset growth included an $87.9 million increase in securities and an $9.1 million increase in total loans. Loan growth during the period is net of $15.9 million in sales of fixed rate residential mortgage loans. Growth in the securities portfolio reflects enhanced utilization of the Company's liquidity position. During the first quarter of 2003, growth in the securities portfolio was supported by deposit growth, increases in retail repurchase agreements, and a reduction in cash and cash equivalents. Additionally, a $37.0 million increase in short-term FHLB borrowings was used to purchase securities in advance of anticipated cash flows from the investment portfolio. Capital Total shareholders' equity totaled $149.7 million at March 31, 2003, a decrease of $938,000 from December 31, 2002. Surplus decreased $3.2 million from $46.0 million at December 31, 2002 to $42.8 million at March 31, 2003, while accumulated other income was down $1.4 million over the same period. The decrease in surplus reflects the repurchase of 81,870 shares of Trustco common stock at a total cost of $3.5 million during the first quarter of 2003. The decrease in other comprehensive income relates to a decrease in unrealized gains on available-for-sale securities. Undivided profits at March 31, 2003, were up $3.7 million from December 31, 2002. Cash dividends paid in the first three months of 2003 totaled approximately $2.2 million, representing 37.8% of year to date earnings. Cash dividends of $0.30 per share for the first three months of 2003, were up from $0.28 per share for the same period in 2002. In July 2002, the Company's board of directors approved a stock repurchase plan (the "Plan"), which authorizes the repurchase of up to 400,000 shares of Tompkins common stock over a two year period. To date, 83,070 shares have been purchased under this Plan, including 81,870 shares purchased in the first quarter of 2003, at an average cost of $42.48 per share. 13
The Company and its banking subsidiaries are subject to various regulatory capital requirements administered by Federal banking agencies. Management believes the Company and its subsidiaries meet all capital adequacy requirements to which they are subject. The table below reflects the Company's capital position at March 31, 2003, compared to the regulatory capital requirements for "well capitalized" institutions. <TABLE> <CAPTION> REGULATORY CAPITAL ANALYSIS - March 31, 2003 - ------------------------------------------------------------------------------------------------------------ Actual Well Capitalized Requirement (Dollar amounts in thousands) Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Total Capital (to risk weighted assets) $144,557 13.5% $107,368 10.0% Tier I Capital (to risk weighted assets) $132,567 12.3% $ 64,421 6.0% Tier I Capital (to average assets) $132,567 7.9% $ 83,838 5.0% - ------------------------------------------------------------------------------------------------------------ </TABLE> As illustrated above, the Company's capital ratios on March 31, 2003, remain well above the minimum requirement for well capitalized institutions. As of March 31, 2003, 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 (reserve) on a regular basis. Management considers the accounting policy relating to the reserve to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the reserve required to cover credit losses in the portfolio and the material effect that assumption could have on the results of operations. 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 and external loan review functions; 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 nonperforming loan statistics; estimated collateral values; and a historical review of loan and lease loss experience. Based upon consideration of the above factors, management believes that the reserve is adequate to provide for the risk of loss inherent in the current loan and lease portfolio. Activity in the Company's reserve for loan/lease losses during the first three months of 2003 and 2002 is illustrated in the table below. <TABLE> <CAPTION> ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands) - ------------------------------------------------------------------------------------------------- March 31, 2003 March 31, 2002 - ------------------------------------------------------------------------------------------------- <S> <C> <C> Average Loans and Leases Outstanding Year to Date $1,000,310 $ 893,058 - ------------------------------------------------------------------------------------------------- Beginning Balance 11,704 10,706 - ------------------------------------------------------------------------------------------------- Provision for loan/lease losses 540 376 Loans charged off (385) (325) Loan recoveries 131 107 - ------------------------------------------------------------------------------------------------- Net charge-offs 254 218 - ------------------------------------------------------------------------------------------------- Ending Balance $ 11,990 $ 10,864 ================================================================================================= </TABLE> The reserve represented 1.19% of total loans and leases outstanding at March 31, 2003, down slightly from 1.21% at March 31, 2002. The reserve coverage of nonperforming loans (loans past due 90 days and accruing, nonaccrual loans, and restructured troubled debt) improved from 1.53 times at March 31, 2002, to 1.68 times at March 31, 2003. Management is committed to early recognition of loan problems and to maintaining an adequate reserve. The level of nonperforming assets at March 31, 2003 and 2002 is illustrated in the table below. Nonperforming assets of $7.6 million as of March 31, 2003, reflect an increase of $382,000 from $7.2 million as of March 31, 2002. Despite the increase in nonperforming assets from March 31, 2002, the current level of nonperforming assets remains modest at 0.43% of total assets. Approximately $441,000 of the nonperforming loans at March 31, 2003, were secured by U.S. Government guarantees, while $1.8 million were secured by one to four family residential properties. 14
Potential problem loans/leases are loans/leases that are currently performing, but where known information about possible credit problems of the related borrowers causes management to have serious doubt as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans/leases as nonperforming at sometime in the future. Management considers loans/leases classified as Substandard, which continue to accrue interest, to be potential problem loans/leases. At March 31, 2003, the Company, through its internal loan review function had identified 22 commercial relationships totaling $5.8 million, which it has classified as Substandard, which continue to accrue interest. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and personal or government guarantees. These factors, when considered in aggregate, give management reason to believe that the current risk exposure on these loans is not significant. Approximately $688,000 of these loans are backed by guarantees of U.S. government agencies. While in a performing status as of March 31, 2003, these loans exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis. <TABLE> <CAPTION> NONPERFORMING ASSETS (In thousands) - ---------------------------------------------------------------------------------------------------- March 31, 2003 March 31, 2002 - ---------------------------------------------------------------------------------------------------- <S> <C> <C> Nonaccrual loans $6,585 $6,823 Loans past due 90 days and accruing 317 88 Troubled debt restructuring not included above 252 183 - ---------------------------------------------------------------------------------------------------- Total nonperforming loans 7,154 7,094 - ---------------------------------------------------------------------------------------------------- Other real estate, net of allowances 399 77 - ---------------------------------------------------------------------------------------------------- Total nonperforming assets $7,553 $7,171 - ---------------------------------------------------------------------------------------------------- Total nonperforming loans as a percent of total loans 0.71% 0.79% Total nonperforming assets as a percentage of total assets 0.43% 0.47% ==================================================================================================== </TABLE> Deposits and Other Liabilities Total deposits of $1.4 billion on March 31, 2003, were up $15.6 million, or 1.2% from December 31, 2002. Core deposits, which include demand deposits, savings accounts, non-municipal money market accounts, and time deposits of less than $100,000 represent the primary funding source for the Company. As of March 31, 2003, core deposits of $1.0 billion represented 64.8% of total liabilities. This compares to core deposits of $1.0 billion, representing 68.3% of total liabilities at December 31, 2002. The opening of the LaGrange office (July 2002) of the Mahopac National Bank and the Cortland office (December 2002) of the Trust Company helped support deposit growth. Non-core funding sources for the Company include: time deposits greater than $100,000, municipal money market deposits, brokered deposits, securities sold under agreements to repurchase, Federal funds purchased, and other borrowings. These non-core funding sources totaled $548.3 million at March 31, 2003, up from $464.2 million at December 31, 2002. The majority of the increase was in other borrowings, securities sold under agreements to repurchases, and Federal funds purchased. Other borrowings, consisting of term borrowings from the Federal Home Loan Bank (FHLB), increased from $81.9 million at December 31, 2002, to $116.8 million at March 31, 2003. 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 $60.5 million as of March 31, 2003, down from $64.3 million at December 31, 2002. Short term investments, consisting of securities due in one year or less, decreased from $24.8 million on December 31, 2002, to $8.5 million on March 31, 2003. Securities pledged to secure certain large deposits and securities sold under agreements to repurchase were 63.3% of total securities as of March 31, 2003, compared to 71.8% as of December 31, 2002. 15
Liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered certificates of deposit, and FHLB advances. Through its subsidiary banks, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. At March 31, 2003, the unused borrowing capacity on established lines with the FHLB was $156.9 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 March 31, 2003, total unencumbered residential mortgage loans of the Company were $222.7 million. Additional assets may also qualify as collateral for FHLB advances upon approval of the FHLB. Item 3. Quantitative and Qualitative Disclosure 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 quarter 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 March 31, 2003. <TABLE> <CAPTION> Condensed Static Gap - March 31, 2003 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 $ 1,614,919 $ 534,647 $ 132,572 $ 220,187 $ 887,406 Interest-bearing liabilities 1,347,891 577,411 94,625 103,861 775,897 - --------------------------------------------------------------------------------------------------------------------------- Net gap position (42,764) 37,947 116,326 111,509 - --------------------------------------------------------------------------------------------------------------------------- Net gap position as a percentage of total assets (2.70%) 2.39% 7.33% 7.03% =========================================================================================================================== </TABLE> The Company's board of directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 200 basis point change in rates. Based upon the simulation analysis performed as of March 31, 2003, a 200 basis point upward shift in interest rates over a one-year time frame would result in a one-year decline in net interest income of approximately 1.23%, assuming no balance sheet growth and no management action to address balance sheet mismatches. The same simulation indicates that a 100 basis point decline in interest rates over a one-year period would result in a decrease in net interest income of 1.01%. Although the simulation model suggests a relatively modest exposure to changes in interest rates, the base scenario (which assumes interest rates remain at current levels) indicates a downward trending net interest margin due to more assets repricing than liabilities in the current low rate environment. Given the expectation of a lower net interest margin in 2003, net interest income growth in 2003 will be largely dependent upon continued growth in earning assets. Although the simulation model is useful in identifying potential exposure to interest rate movements, the Company's current liquidity profile, capital position, and growth prospects, offer a level of flexibility for management to take actions that could offset some of the negative effects of unfavorable movements in interest rates. Management believes the current exposure to changes in interest rates is not significant in relation to the earnings and capital strength of the Company. 16
Item 4. Controls and Procedures The Company's management, including the Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operations of the Company's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended) (the "Exchange Act") on April 21, 2003 (the "Evaluation Date"). Based upon that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective in timely alerting them to any material information relating to the Company and its subsidiaries required to be included in the Company's Exchange Act filings. There were no significant changes made in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. 17
Average Consolidated Balance Sheet and Net Interest Analysis <TABLE> <CAPTION> Year to Date Period Ended Year to Date Period Ended Mar-03 Mar-02 - ------------------------------------------------------------------------------------------------------------------------------- Average Average Balance Average Balance Average (Dollar amounts in thousands) (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> ASSETS Interest-earning assets Certificates of deposit with other banks $ 3,778 $ 15 1.61% $ 0 $ 0 0.00% Securities (1) U.S. Government Securities 432,384 4,680 4.39% 333,397 4,793 5.83% State and municipal (2) 85,407 1,432 6.80% 71,869 1,221 6.89% Other Securities (2) 35,306 308 3.54% 46,762 374 3.26% ------------------------------------------------------------------------------- Total securities 553,097 6,420 4.71% 452,028 6,388 5.73% Federal Funds Sold 4,248 13 1.24% 14,046 56 1.62% Loans, net of unearned income (3) Real Estate 618,385 10,333 6.78% 525,459 9,898 7.64% Commercial Loans (2) 254,928 3,815 6.07% 236,005 3,923 6.74% Consumer Loans 103,433 2,368 9.28% 111,993 2,599 9.41% Direct Lease Financing 23,564 412 7.09% 19,601 381 7.88% ------------------------------------------------------------------------------- Total loans, net of unearned income 1,000,310 16,928 6.86% 893,058 16,801 7.63% ------------------------------------------------------------------------------- Total interest-earning assets 1,561,433 23,376 6.07% 1,359,132 23,245 6.94% ------------------------------------------------------------------------------- Other assets 139,858 123,388 ---------- ---------- Total assets $1,701,291 $1,482,520 ========== ========== - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES & SHAREHOLDERS' EQUITY Deposits Interest-bearing deposits Interest bearing checking, savings, & money market 721,387 1,805 1.01% 571,351 2,192 1.56% Time Dep > $100,000 113,290 754 2.70% 122,400 903 2.99% Time Dep < $100,000 249,822 1,820 2.95% 241,209 2,325 3.91% Brokered Time Dep < $100,000 20,051 184 3.72% 10,350 96 3.76% ------------------------------------------------------------------------------- Total interest-bearing deposits 1,104,550 4,563 1.68% 945,310 5,516 2.37% Federal funds purchased & securities sold under agreements to repurchase 89,046 620 2.82% 82,821 639 3.13% Other borrowings 92,494 1,062 4.66% 81,846 1,021 5.06% ------------------------------------------------------------------------------- Total interest-bearing liabilities 1,286,090 6,245 1.97% 1,109,977 7,176 2.62% Noninterest bearing deposits 244,255 221,707 Minority Interest 1,507 1,507 Accrued expenses and other liabilities 19,230 16,222 ---------- ---------- Total liabilities 1,551,082 1,349,413 Shareholders' equity 150,209 133,107 ---------- ---------- Total liabilities and shareholders' equity $1,701,291 $1,482,520 ========== ========== Interest rate spread 4.10% 4.32% ------------------------ ------------------------ Net interest income/margin on earning assets $ 17,131 4.45% $ 16,069 4.80% Tax equivalent adjustment (587) (492) ---------- ---------- Net interest income per consolidated financial statements $ 16,544 $ 15,577 - ------------------------------------------------------------------------------------------------------------------------------- </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, 2002. 18
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 of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 2002. (b) Reports on Form 8-K On February 25, 2003, Tompkins Trustco, Inc. filed a Form 8-K regarding the repurchase of 81,870 shares of the Company's common stock. The shares were acquired in a privately negotiated transaction for $3,479,475, or $42.50 per share. 19
SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 2, 2003 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 20
CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, James J. Byrnes, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tompkins Trustco, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 2, 2003 /s/ JAMES J. BYRNES - --------------------------------- James J. Byrnes Chairman, Chief Executive Officer 21
CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Francis M. Fetsko, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tompkins Trustco, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 2, 2003 /s/ FRANCIS M. FETSKO - ------------------------------------------------- Francis M. Fetsko Senior Vice President and Chief Financial Officer 22
EXHIBIT INDEX - ------------- EXHIBIT NUMBER DESCRIPTION PAGES - -------------- ----------- ----- 99.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 24 99.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 2002 25 23