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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-27514 TOMPKINS COUNTY TRUSTCO, INC. (Exact name of registrant as specified in its charter) New York 161482357-8 (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 May 6, 1996 ----- ----------------------------- Common Stock, $.10 par value 3,580,765 shares
PART I - FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (In thousands, except share data) <CAPTION> As of As of 3/31/96 12/31/95 ------- -------- ASSETS <S> <C> <C> Cash and due from banks $ 25,205 $ 20,757 Federal Funds sold 2,000 -0- Available-for-sale securities, at fair value 145,165 145,067 Held-to-maturity securities, fair value of $38,508 in 1996 and $40,219 in 1995 37,496 38,908 Federal Home Loan Bank stock, at cost 1,655 1,560 Loans, net of unearned income 323,300 321,290 Less reserve for loan/lease losses 4,729 4,704 - - -------------------------------------------------------------------------------- Net Loans 318,571 316,586 Bank premises and equipment, net 6,957 7,173 Other assets 7,137 6,941 - - --------------------------------------------------------------------------------- Total Assets $544,186 $536,992 ================================================================================ </TABLE> 2
<TABLE> CONDENSED CONSOLIDATED STATEMENTS OF CONDITION continued (In thousands, except share data) <CAPTION> As of As of 3/31/96 12/31/95 ------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Deposits: Interest bearing: Checking $ 55,222 $ 54,912 Savings and money market 126,456 135,957 Time 125,219 106,349 Non-interest bearing 71,347 73,413 - - -------------------------------------------------------------------------------- Total Deposits 378,244 370,631 Securities sold under agreements to repurchase 94,163 92,902 Other borrowings 11,000 12,000 Other liabilities 6,194 6,367 - - -------------------------------------------------------------------------------- Total Liabilities 489,601 481,900 - - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES Shareholders' equity: Common stock - par value $.10 per share in 1996 & $1.66 in 1995: Authorized 7,500,000 shares; issued and outstanding 597 5,969 3,580,463 shares in 1996 and 3,580,607 in 1995 Surplus 38,952 33,580 Undivided profits 16,827 15,560 Net unrealized gain (loss) on available-for-sale securities, net of taxes (239) 909 Treasury Stock - 22,000 shares in 1996 (627) 0 Deferred I.S.O.P. benefit expense (925) (926) - - -------------------------------------------------------------------------------- Total Shareholders' Equity 54,585 55,091 - - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 544,186 $ 536,992 ================================================================================ </TABLE> 3
<TABLE> CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) <CAPTION> Quarter ended 3/31/96 3/31/95 ------- ------- <S> <C> <C> INTEREST INCOME Loans $ 7,359 $ 6,775 Deposits with other banks 0 0 Federal Funds Sold 162 98 Available-for-sale securities 507 563 Held-to-maturity securities 2,275 2,129 - - -------------------------------------------------------------------------------- Total Interest Income 10,303 9,565 - - -------------------------------------------------------------------------------- INTEREST EXPENSE Deposits: Time certificates of deposit of $100,000 or more 289 138 Other deposits 2,549 2,358 Securities sold under agreements to repurchase 1,209 1,272 Borrowed funds 167 169 - - -------------------------------------------------------------------------------- Total Interest Expense 4,214 3,937 - - -------------------------------------------------------------------------------- Net Interest Income 6,089 5,628 Less:Provision for loan/lease losses 204 83 - - -------------------------------------------------------------------------------- Net Interest Income after provision for loan/lease losses 5,885 5,545 - - -------------------------------------------------------------------------------- OTHER INCOME Trust and investment services income 617 506 Services charges deposit accounts 426 419 Credit card merchant income 463 415 Other service charges 294 250 Other operating income 151 134 Net securities gains 0 0 - - -------------------------------------------------------------------------------- Total Other Income 1,951 1,724 - - -------------------------------------------------------------------------------- OTHER EXPENSES Salaries and wages 1,862 1,712 Pension and other employee benefits 510 482 Net occupancy expense of bank premises 354 292 Furniture and fixture expense 281 259 F.D.I.C assessments 0 195 Credit card operating expense 399 344 Other operating expenses 1,046 911 - - -------------------------------------------------------------------------------- Total Other Expenses 4,452 4,195 - - -------------------------------------------------------------------------------- Income before Income Taxes 3,384 3,074 Income Taxes 1,184 1,014 - - -------------------------------------------------------------------------------- Net Income $ 2,200 $ 2,060 ================================================================================ Net income per common share $ 0.62 $ 0.58 ================================================================================ </TABLE> 4
<TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share data) <CAPTION> Quarter ended 3/31/96 3/31/95 ------- ------- <S> <C> <C> OPERATING ACTIVITIES Net Income $ 2,200 $ 2,060 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan/lease losses 204 83 Provision for depreciation and amortization 259 229 Net accretion on securities (11) (103) Provision for deferred income taxes 0 (15) Gains on sales of bank premises and equipment (2) (6) Increase in other assets (247) (919) Increase in other liabilities 663 2,600 - - -------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 3,066 3,929 - - -------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from maturities of available-for-sale securities 25,843 2,758 Proceeds from maturities of held-to-maturity securities 2,771 5,165 Purchases of available-for-sale securities (27,884) 0 Purchases of held-to-maturity securities (1,386) (7,825) Purchases of FHLB stock (95) (58) Proceeds from sales of loans 492 388 Net increase in loans (2,634) (5,954) Proceeds from sales of bank premises and equipment 12 9 Purchases of bank premises and equipment (52) (107) - - -------------------------------------------------------------------------------- Net Cash Used in Investing Activities (2,933) (5,624) - - -------------------------------------------------------------------------------- FINANCING ACTIVITIES Net (decrease) increase in demand deposits, money market accounts and savings accounts (11,258) 3,222 Net increase in time deposits 18,869 4,020 Net increase (decrease) in securities sold under repurchase agreements 1,261 (6,454) Net decrease in other borrowings (1,000) 0 Cash dividends (931) (846) Decrease in deferred I.S.O.P benefit expense 1 2 Issuance of common stock 0 6 Purchase of common stock for treasury (627) 0 - - -------------------------------------------------------------------------------- Net Cash Provided (used) By Financing Activities 6,315 (50) - - -------------------------------------------------------------------------------- (Decrease) Increase in Cash and Cash Equivalents 6,448 (1,745) Cash and cash equivalents at beginning of period 20,757 28,105 - - -------------------------------------------------------------------------------- Cash And Cash Equivalents At End Of Period $ 27,205 $ 26,360 ================================================================================ </TABLE> 5
<TABLE> STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands, except share data) <CAPTION> Net Unrealized Gain/(Loss) Deferred on Available- I.S.O.P Common Treasury Undivided for-Sale Benefit Stock Stock Surplus Profits Securities Expense Total - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> Balances at January 1, 1996 $ 5,969 $ 0 $33,580 $15,559 $ 909 $ (926) $55,091 - - ------------------------------------------------------------------------------------------------------------------------------------ Net income 2,199 2,199 Common stock issued Cash dividends ($.26 per share) (931) (931) Effect of change in par value from $1.66 to $.10 (5,372) 5,372 Change in net unrealized gain/(loss), net of taxes of ($832) (1,148) (1,148) Common stock purchased for treasury (627) (627) Shares released for allocation 1 1 - - ------------------------------------------------------------------------------------------------------------------------------------ Balances at March 31, 1996 $ 597 $ (627) $38,952 $16,827 $ (239) $ (925) $54,585 - - ------------------------------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------------------------------ Balances at January 1, 1995 $ 5,426 $24,699 $19,788 $ (829) $(1,267) $47,817 - - ------------------------------------------------------------------------------------------------------------------------------------ Net income 2,060 2,060 Common stock issued 6 6 Cash dividends ($.24 per share) (845) (845) Change in net unrealized gain/(loss), net of taxes of $595 824 824 Shares released for allocation 1 1 - - ------------------------------------------------------------------------------------------------------------------------------------ Balances at March 31, 1995 $ 5,426 $24,705 $21,003 $ (5) (1,266) $49,863 - - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> 6
NOTES TO FINANCIAL STATEMENTS Note 1. Business: On April 26, 1995, the shareholders approved a proposal to revise the corporate structure by establishing a one bank holding company. On January 1, 1996, Tompkins County Trust Company (the Trust Company) became the wholly owned subsidiary of Tompkins County Trustco, Inc. (Trustco) and all of the issued and outstanding shares of common stock of the Trust Company were automatically converted into shares of common stock of Trustco. The Trust Company provides loan, deposit, and trust services to its customers primarily in Tompkins County, New York. Its only business segment is domestic commercial banking. The Trust Company traces its charter back to 1836. Basis of Presentation: The accompanying condensed financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes thereto included in Trustco's Form 10-K for the year ended December 31, 1995. The condensed consolidated financial statements included herein reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of Trustco's financial position at March 31, 1996 and 1995, and the results of operations for the three months ended March 31, 1996 and 1995. Certain reclassifications have been made to prior period amounts for consistency in reporting. Impaired Loans: Trustco's recorded investment in loans considered impaired in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), was $994,000 at March 31, 1996. Of that amount, $157,000 has been established as an allowance for loan loss under SFAS 114, and management has assigned a collateral value of $869,300 to the remaining balance of impaired loans. On December 31, 1995, impaired loans, with similar well collateralized characteristics, totalled $1,086,000 with an established allowance of $233,000. 7
Note 1. (cont'd) Other Accounting Issues: On January 1, 1996, Trustco adopted Statement of Financial Accounting Standards ("SFAS 122"), "Accounting for Mortgage Servicing Rights" on a prospective basis. SFAS 122 requires Trustco to recognize as separate assets rights to service mortgage loans for others, however, those servicing rights are acquired, and also requires Trustco to assess its capitalized mortage servicing rights for impairment based on the fair value of those rights. The adoption of SFAS 122 did not have a material impact on Trustco's financial condition or results of operations. On January 1, 1996, Trustco adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which encourages, but does not require, companies to use a fair value based method of determining compensation cost for grants of stock options under stock based employee compensation plans. As permitted by SFAS No. 123, Trustco elected to continue to account for stock based compensation in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"). Under APB 25, no compensation cost is recorded as options are granted by Trustco at a purchase price not less than the fair market value of the common stock on the date of the grant. Companies electing to continue accounting under the provisions of APB 25 are required to present pro forma disclosures of net income and net income per share for each period in which a complete set of financial statements is presented. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion is to provide the reader with information designed to understand the financial statements included herewith and to provide information as to material events or changes which effected the financial condition or results of operation since the last reporting period which was December 31, 1995. This discussion will not repeat numerical data contained in the financial statements nor will it recite the amount of change from period to period since these changes are readily computable from the financial statements. References below to "bank" or variations thereof are to Tompkins County Trustco, Inc. ("Trustco") and its wholly owned operating subsidiary Tompkins County Trust Company ("TCTC"). Liquidity. There are no known demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result, in the bank's liquidity increasing or decreasing in any material way . The second quarter of the calendar year typically is the home mortgage season for the bank when mortgage loan activity increases. Further, this is the period in which municipal deposits, particularly local school district deposits, are drawn down. Neither of theses events are expected to result in any material demands on liquidity that can not be met through the normal course of business operations. For the three month period ending March 31, 1996 the bank's total assets grew modestly to $544.1 million. Loans and leases showed continued growth and on balance sheet loans totaled $323.3 million. The bank's overall liquidity was sufficient to meet the demands of borrowers and depositors. The period ended with average overnight federal funds sold of $11.9 million during the quarter. Capital resources. The bank continues to add approximately 60% of its after tax net income to retained earnings to be employed in the normal course of its banking business. During the first quarter of 1996 the remaining approximately 40% of net income was paid out in the form of dividends to shareholders of Trustco. Additionally, TCTC has a substantial credit facility with the Federal Home Loan Bank which it can employ should the bank need to raise funds for legitimate banking purposes. Other than normal commitments for loans, there were no material or unusual commitments for bank funds on March 31, 1996. On March 31, 1996 the bank's leverage ratio was 10.1%, essentially the same ratio for the period ending December 31, 1995. This ratio increased from 9.5% on December 31, 1995 and 9.7% on March 31, 1995. The tier one risk based capital ratio of 16.6% on March 31, 1996 improved over the 16.2% ratio on December 31, 1995. Other than the increase in the bank's leverage ratio, there are no material trends, favorable or unfavorable, in the bank's capital resources. 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. continued. Results of Operations: There were no unusual or infrequent events nor transactions nor any significant economic changes that materially effected the amount of reported income from continuing operations during the quarter ended March 31, 1996. However, as a result of the nationwide decrease in the cost of the Federal Deposit Insurance Corporation ("FDIC") insurance premiums for commercial banks, TCTC's cost for FDIC insurance for the twelve month period ending December 31, 1996 is expected to be lower than the previous year by approximately $400,000. The bank is considered a well capitalized bank and pays the lowest premium available as a result. There are no known trends or uncertainties that have had or are reasonably expected to have a material effect on revenues or income from continuing operations. There are no known events that are likely to cause material changes in the relationship between costs and revenues in the upcoming period. However, as with all financial institutions, both the bank's interest income and interest expense are effected by changes in national and local interest rates and/or inflation. The bank maintains an Asset/Liability Management Committee ("the Committee") which periodically reviews asset and liability repricing issues, TCTC's liquidity position, and the impact of changes in interest rates on the bank's net interest income. From time to time, the Committee employs outside specialists to supplement its internal review and information systems. The attached Average Consolidated Balance Sheet and Net Interest Analysis is provided to show the components of the bank's net interest margin. The net interest margin improved from 4.97% to 4.98 % for the twelve month period ended March 31, 1996. Though the overall cost of interest bearing liabilities increased to 4.14% during the twelve month period ended March 31, 1996, the increased volume of non interest bearing deposits and capital offset the extra cost of funds which resulted in essentially the same net interest margin on an increased asset base and an increase in net interest income. To date, TCTC has not specifically employed financial futures, interest rate swaps, or off balance sheet derivative products. The Committee believes that managing its asset and liability sensitivity through loans, leases, investments, retail deposits and wholesale deposits has allowed it to maintain an acceptable liability sensitive position for the near future. It is not expected that changes in inflation will have a material effect on other goods or services or labor costs. 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. continued. For the quarter ended March 31, 1996 the bank charged $203,566 to operations as a provision for loan and lease losses compared to $83,149 for the first quarter of 1995. Bank management reviews the adequacy of its allowance for loan and lease losses in a detailed and ongoing manner and believes its current reserve for loan and lease losses of $4.7 million is satisfactory. Though the change in the provision is material, bank management believes that the 1995 provision was unusually low and does not believe the 1996 provision is indicative of any adverse trends. TCTC continues to expand its Trust and Investment Services Department. At December 31, 1995, TCTC had assets under management or in custody with a market value $404.8 million, an increase of almost $62 million over the preceding twelve months. The market value of these assets again improved to $461.8 million on March 31, 1996. Currently, Trust and Investment Services customers live throughout the continental United States in over 40 states, with the largest concentration in Tompkins County. Trust and investment management services provide substantial fee income to the bank and are considered important to future revenue growth. Consequently, management plans to continue to market these services broadly. Continuing operations, effected by the aforementioned factors, resulted in net income after tax of $2.2 million, an increase of 6.8% over the same quarter one year ago. 11
<TABLE> TOMPKINS COUNTY TRUST COMPANY Average Consolidated Balance Sheet and Net Interest Analysis (In thousands) <CAPTION> March 31 1996 1995 ------------------------------------------------------- Average Average Average Average Balance Yield/ Balance Yield/ (YTD) Interest Rate (YTD) Interest Rate - - -------------------------------------------------------------------------------------- ASSETS <S> <C> <C> <C> <C> <C> <C> Interest-earning assets Securities U.S. Treasury 41,621 719 6.95% 47,352 845 7.24% U.S. Government 96,159 1,499 6.27% 77,849 1,202 6.26% agencies and corporations State and municipal * 38,671 768 7.99% 43,758 853 7.90% Other debt 3,287 57 6.97% 4,919 82 6.76% ------- ------ ------- ----- Total securities 179,738 3,043 6.81% 173,879 2,982 6.95% Federal Funds Sold 11,858 162 5.50% 6,998 98 5.69% Loans, net of unearned income Commercial and 121,671 2,833 9.36% 113,379 2,596 9.29% industrial * Residential real 101,586 1,986 7.86% 89,246 1,696 7.70% estate Home equity 21,115 526 10.03% 20,910 496 9.63% Consumer 64,218 1,708 10.70% 67,925 1,725 10.30% Direct lease financing 12,072 242 8.06% 10,178 212 8.43% Other 2,712 85 12.54% 2,115 74 14.16% Total loans, net of unearned income 323,375 7,380 9.18% 303,752 6,799 9.08% ------- ------ ------- ----- Total interest-earning assets 514,971 10,585 8.27% 484,629 9,879 8.27% Noninterest-earning assets Allowance for credit losses (4,738) (4,678) Cash and due from banks 19,977 19,934 Other assets 14,133 13,161 -------- -------- Total assets $544,344 $513,047 ======== ======== ------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Interest-bearing deposits Interest bearing checking $55,893 $258 1.86% $53,530 $241 1.83% Savings and money market 133,586 1,066 3.21% 140,636 1,143 3.30% Time 116,217 1,514 5.24% 92,734 1,112 4.86% ------- ----- ------- ----- Total deposits 305,697 2,838 3.73% 286,900 2,496 3.53% Federal funds purchased 242 3 5.63% 759 12 6.18% Repurchase agreements 91,624 1,209 5.31% 94,070 1,272 5.48% Other borrowings 11,517 163 5.70% 11,998 157 5.32% ------- ----- ------- ----- Total interest-bearing liabilities 409,079 4,214 4.14% 393,728 3,937 4.05% Non-interest bearing deposits 72,524 66,443 Accrued expenses and other liabilities 7,363 4,497 ------- ------- Total liabilities 488,966 464,668 Shareholders' equity 55,410 48,271 ------- ------- Total liabilities and shareholders' equity $544,376 $512,939 ======== ======== Interest rate spread 4.13% 4.22% Impact of noninterest-bearing liabilities 0.85% 0.75% ---- ---- Net interest income/margin on earning assets $6,371 4.98% $5,943 4.97% ====== ==== ====== ==== - - -------------------------------------------------------------------------------------- </TABLE> *Interest income includes the effects of taxable-equivalent adjustments using a federal income tax rate of 34% to increase tax exempt interest income to a taxable-equivalent basis. 12
PART II - OTHER INFORMATION ITEM 6. Ehibits and Reports on Form 8-K (a) Exhibits - none. (b) No Reports on Form 8-K were filed during the quarter ended March 31, 1996. 13
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 10, 1996 TOMPKINS COUNTY TRUSTCO, INC. By: /s/ JAMES J. BYRNES ------------------------------------- James J. Byrnes Chairman of the Board, President and Chief Executive Officer By: /s/ RICHARD D. FARR ------------------------------------ Richard D. Farr Senior Vice President and Chief Financial Officer 14