UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2000 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, NEW YORK 14851 - - ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (607) 273-3210 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of Class: COMMON STOCK ($.10 PAR VALUE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's voting stock held by non-affiliates was approximately $172,897,000 on March 12, 2001, based on the closing sales price of the registrant's common stock, $.10 par value (the "Common Stock"), as reported on the American Stock Exchange, Inc. as of such date. The number of shares of the registrant's Common Stock outstanding as of March 12, 2001, was 7,433,841 shares. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement (the "Proxy Statement") filed with the Securities and Exchange Commission in connection with the 2001 Annual Meeting of Stockholders, is incorporated herein by reference in Part III.
TOMPKINS TRUSTCO, INC. 2001 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I PAGE Item 1. Business of the Company 1 Item 2. Properties 4 Item 3. Legal Proceedings 6 Item 4. Submission of Matters for a Vote by Securities Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Securities 7 Item 6. Selected Financial Data 7 Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 22 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 55 PART III Item 10. Directors and Executive Officers of the Registrant 55 Item 11. Executive Compensation 56 Item 12. Security Ownership of Certain Beneficial Owners and Management 56 Item 13. Certain Relationships and Related Transactions 56 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 57
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PART I ITEM 1. BUSINESS OF THE COMPANY GENERAL Headquartered in Ithaca, New York, Tompkins Trustco, Inc. ("Tompkins" or "the Company") is the publicly traded parent company of Tompkins Trust Company (the "Trust Company"), The Bank of Castile, and The Mahopac National Bank. Through its banking subsidiaries the Company provides community banking services to their local market areas in New York State. 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 the Tompkins Trust Company (formerly known as Tompkins County Trust Company), a commercial bank that has operated in the community of Ithaca, New York, and environs since 1836. MERGERS AND ACQUISITIONS On December 31, 1999, Tompkins completed a merger with Letchworth Independent Bancshares ("Letchworth"), which was the parent company for The Bank of Castile (a wholly-owned subsidiary) and The Mahopac National Bank (approximately 70 percent owned by Letchworth). The merger was accounted for as a pooling-of-interests, and upon completing the merger, Letchworth was merged with and into Tompkins. All prior period financial information has been restated to present the combined financial condition and results of operations of both companies as if the merger had been in effect for all periods presented. On June 4, 1999, Letchworth acquired 70.17 percent of the outstanding common stock of The Mahopac National Bank in a cash transaction accounted for as a purchase. Accordingly, operating results for The Mahopac National Bank are not included for periods prior to June 4, 1999. Subsequent to June 4, 1999, net income of The Mahopac National Bank is included in Tompkins' net income based upon the percentage of Tompkins' ownership of The Mahopac National Bank. Effective September 1, 2000, and early in 2001, Tompkins completed the purchase of the minority interest in The Mahopac National Bank, primarily in a stock-for-stock transaction accounted for as a purchase. Prior to September 1, 2000, the approximately 30% interest in The Mahopac National Bank, which was not owned by Tompkins, was shown as a minority interest in consolidated subsidiaries on the consolidated statements of condition. 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., a wholly-owned subsidiary of Tompkins. The agencies primarily offer property and casualty insurance to individuals and businesses in Western New York State. They are expected to continue operating in their current locations, which include Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia. Further details pertaining to the mergers and acquisitions are presented in Note 2 to the consolidated financial statements, included herein. NARRATIVE DESCRIPTION OF BUSINESS Through its community bank subsidiaries, the Company provides traditional banking related services, which constitute the Company's only business segment. Banking services consist primarily of attracting deposits from the areas served by its banking offices and using those deposits to originate a variety of commercial loans, consumer loans, real estate loans (including commercial loans collateralized by real estate), and leases, and providing trust and investment related services. The Company's principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for loan losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow from lending and investing activities. The Company conducts trust and investment services through Tompkins Investment Services, a division of Tompkins Trust Company. Tompkins Investment Services provides a full range of money management services, including investment management accounts, custody accounts, trusts, retirement plans and rollovers, estate settlement, and financial planning. The Company maintains a portfolio of securities such as U.S. government and agency securities, obligations of states and political subdivisions thereof, equity securities, and interest-bearing deposits. It is the intention of management to maintain short to intermediate average lives in the Company's securities portfolio in order to better match the interest rate sensitivities of its assets and liabilities. Investment decisions are made within policy guidelines established by the Company's board of directors. The investment policy established by the board of directors is based on the asset/liability management goals of the Company. The intent of the policy is to establish a portfolio of high quality diversified securities, which optimize net interest income within acceptable limits of safety and liquidity. Purchases of securities, other than certain obligations of states and political subdivisions thereof, are classified as available-for-sale, 1
though it is generally management's intent to hold all securities to maturity. Securities available-for-sale may be used to enhance total return, provide additional liquidity, or reduce interest rate risk. Information regarding the amortized cost and fair value of the securities portfolio for the years ended 2000 and 1999 is presented in Note 3 to the Company's consolidated financial statements. The amortized cost and fair value of the securities portfolio for the year ended 1998 is presented in the table below. <TABLE> <CAPTION> AVAILABLE-FOR-SALE SECURITIES - - ---------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 1998 (in thousands) COST GAINS LOSSES VALUE - - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government agencies $135,719 $1,858 $ 21 $137,556 Obligations of states and political subdivisions 32,487 1,415 25 33,877 Mortgage-backed securities 71,570 444 134 71,880 - - ---------------------------------------------------------------------------------------------------------- Total debt securities 239,776 3,717 180 243,313 - - ---------------------------------------------------------------------------------------------------------- Equity securities 5,769 173 0 5,942 - - ---------------------------------------------------------------------------------------------------------- Total available-for-sale securities $245,545 $3,890 $180 $249,255 ========================================================================================================== Available-for-sale securities include $4,833,000 in equity securities, which are carried at amortized cost since fair values are not readily determinable. This figure includes $3,629,000 of Federal Home Loan Bank Stock. HELD-TO-MATURITY SECURITIES - - ---------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 1998 (in thousands) COST GAINS LOSSES VALUE - - ---------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $ 34,088 $ 923 $ 0 $ 35,011 - - ---------------------------------------------------------------------------------------------------------- Total held -to-maturity debt securities $ 34,088 $ 923 $ 0 $ 35,011 - - ---------------------------------------------------------------------------------------------------------- </TABLE> COMPETITION The Company's subsidiary banks operate 30 offices, including two limited-service offices, serving communities in upstate New York. The Trust Company operates 12 full-service and one limited service banking offices in the counties of Tompkins and Schuyler. The Bank of Castile conducts its operations through its 12 full-service and one limited service offices, in towns situated in and around the areas commonly known as the Letchworth State Park area and the Genesee Valley region of New York State. The Mahopac National Bank is located in Putnam County, and operates four full-service branches in that county. Deposits of all three banks are insured by the Federal Deposit Insurance Corporation. Competition for commercial banking and trust and investment services is strong in the Company's market areas. Deregulation of the banking industry has created a highly competitive environment for commercial banking services. Increased competition has resulted in a decreasing number of community banks, and increased competition from regional and national financial service providers. In one or more aspects of its business, the Company competes with other commercial banks, savings institutions, credit unions, mortgage bankers and brokers, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Many of these competitors, some of which are affiliated with large financial holding companies, have substantially greater resources and lending limits, and may offer certain services the Company does not currently provide. In addition, many non-bank competitors, such as credit unions, are not subject to the same taxes or extensive federal regulations that apply to bank holding companies and federally insured banks. The recent Letchworth acquisition provides increased capacity for growth, and greater capital resources necessary to make investments in technology and services that will improve the Company's ability to compete. 2
Since the office locations of The Mahopac National Bank and The Bank of Castile are not immediately adjacent to markets served by the Trust Company, the merger provides Tompkins with new areas to market products and services, with relatively little disruption to the core strategy or operation of the Trust Company. The Company's decision to operate as three locally managed community banks reflects management's commitment to community banking as a business strategy that will continue to be emphasized. The recent acquisitions of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., to form Tompkins Insurance Agencies, Inc. will add a line of insurance and risk management products to the Company's array of financial products. The area served by the Trust Company consists primarily of Tompkins County, with an estimated population of 97,000 people. Education plays a significant role in the local economy with Cornell University and Ithaca College being two of the county's major employers. Current economic trends include low unemployment and moderate growth. The Bank of Castile serves a five-county market that is primarily rural in nature. The opening of a branch office in Chili, New York, in 1999 provides increased access to the suburban Rochester, New York, market. Excluding Monroe County, which includes Rochester, the population of counties served by The Bank of Castile is approximately 171,000. Economic growth has been relatively flat in The Bank of Castile's market area, although the significant population base of the suburban Rochester market (in excess of 700,000 people), provides significant opportunities for growth. The primary market area for The Mahopac National Bank is Putnam County, New York, with a population of approximately 93,000. Putnam County is about 60 miles north of Manhattan, and is one of the fastest growing counties in New York State. REGULATION As a registered financial holding company, the Company is subject to examination and comprehensive regulation by the Federal Reserve Board (FRB). The Company's subsidiary banks are subject to examination and comprehensive regulation by various regulatory authorities, including the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the New York State Banking Department (NYSBD). Each of these agencies issues regulations and requires the filing of reports describing the activities and financial condition of the entities under its jurisdiction. Likewise, such agencies conduct examinations on a recurring basis to evaluate the safety and soundness of the institutions, and to test compliance with various regulatory requirements, including: consumer protection, fair lending, the Community Reinvestment Act, sales of non-deposit investments, electronic data processing, and trust department activities. Under FRB regulations, the Company may not, without providing prior notice to the FRB, purchase or redeem its own Common Stock if the gross consideration for the purchase or redemption, combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to ten percent or more of the Company's consolidated net worth. Additionally, FRB policy provides that dividends shall not be paid except out of current earnings and unless prospective rate of earnings retention by the Company appears consistent with its capital needs, asset quality, and overall financial condition. The FRB, the FDIC, and the OCC have promulgated capital adequacy guidelines that are considered by the agencies in examining and supervising a bank or bank holding company; and in analyzing any applications a bank or bank holding company may submit to the appropriate agency. In addition, for supervisory purposes, the agencies have promulgated regulations establishing five categories of capitalization, ranging from well capitalized to critically undercapitalized, depending upon the level of capitalization and other factors. Currently, the Company and its subsidiary banks maintain leverage and risk-based capital ratios above the required levels and are considered well capitalized under the applicable regulations. A comparison of the Company's capital ratios and the various regulatory requirements is included in Note 17 of the Company's consolidated financial statements. All deposit accounts of the Company's subsidiary banks are insured by the Bank Insurance Fund (BIF), generally in amounts up to $100,000 per depositor. The FDIC has the power to terminate a bank's insured status or to temporarily suspend it under special conditions. Deposit insurance coverage is maintained by payment of premiums assessed to banks insured by the BIF. Based on capital strength and a favorable FDIC risk classification, the subsidiary banks are not currently subject to BIF insurance assessments. Beginning in January 1997, all BIF insured banks are subject to special assessments to repay Financing Corporation (FICO) bonds, which were used to repay depositors of failed Savings and Loan Associations after the former Federal Savings and Loan Insurance Fund became insolvent. EMPLOYEES At December 31, 2000, the Company employed 491 employees, approximately 93 of whom were part-time. No employees are covered by a collective bargaining agreement and the Company believes its employee relations are excellent. 3
ITEM 2. PROPERTIES The following table provides information relating to the Company's facilities: <TABLE> <CAPTION> LOCATION FACILITY TYPE SQUARE FEET OWNED/LEASED* <S> <C> <C> <C> The Commons Trust Company 23,900 Owned Ithaca, NY Main Office 119 E. Seneca Street Trust Company 18,550 Owned Ithaca, NY Trust and Investment Services 121 E. Seneca Street Administration 18,900 Owned Ithaca, NY Rothschilds Building Operations and Data Processing 20,500 Leased The Commons, Ithaca, NY Central Avenue Trust Company 400 Leased Cornell University, Ithaca, NY Cornell Campus Office 905 Hanshaw Road Trust Company 790 Leased Ithaca, NY Community Corners Office 139 N. Street Extension Trust Company 2,250 Owned Dryden, NY Dryden Office 1020 Ellis Hollow Road Trust Company 650 Leased Ithaca, NY East Hill Plaza Office 775 S. Meadow Street Trust Company 2,280 Owned Ithaca, NY Plaza Office Pyramid Mall Trust Company 610 Leased Ithaca, NY Pyramid Mall Office 116 E. Seneca Street Trust Company 775 Owned Ithaca, NY Seneca Street Drive-in 2251 N. Triphammer Road Trust Company 3,000 Leased Ithaca, NY Triphammer Road Office 2 W. Main Street Trust Company 2,720 Owned Trumansburg, NY Trumansburg Office 701 W. Seneca Street Trust Company 2,150 Owned Ithaca, NY West End Office 2230 N. Triphammer Road Trust Company 204 Leased Ithaca, NY Kendal Office (Part-time office) 100 Main Street Trust Company 3,115 Owned Odessa, NY Odessa Office 50 N. Main Street The Bank of Castile 6,662 Owned Castile, NY Main Office </TABLE> 4
<TABLE> <CAPTION> LOCATION FACILITY TYPE SQUARE FEET OWNED/LEASED* <S> <C> <C> <C> 604 W. Main Street The Bank of Castile 4,662 Owned Arcade, NY Arcade Office 263 E. Main Street The Bank of Castile 3,303 Owned Avon, NY Avon Office 408 E. Main Street The Bank of Castile 3,496 Owned Batavia, NY Batavia Office 3155 State Street The Bank of Castile 4,680 Owned Caledonia, NY Caledonia Office 3252 Chili Avenue The Bank of Castile 4,000 Owned Chili, NY Chili Office 1 Main Street The Bank of Castile 1,448 Owned Gainesville, NY Gainesville Office 11 South Street The Bank of Castile 9,700 Owned Geneseo, NY Geneseo Office 29 Main Street The Bank of Castile 3,084 Owned LeRoy, NY LeRoy Office 102 N. Center Street The Bank of Castile 4,702 Owned Perry, NY Perry Office 2727 Genesee Street The Bank of Castile 2,220 Leased Retsof, NY Retsof Office 445 N. Main Street The Bank of Castile 2,798 Owned Warsaw, NY Warsaw Office 129 N. Center Street The Bank of Castile 11,138 Owned Perry, NY Processing Center ** 1410 S. Main Street The Bank of Castile 1,250 Leased Medina, NY 14103 Medina Office (Loan Production Office) 630 Route 6 The Mahopac National Bank 2,800 Owned Mahopac, NY Mahopac Office 591 Route 6N The Mahopac National Bank 3,000 Owned Mahopac Falls, NY Red Mills Office 21 Peekskill Hollow Road The Mahopac National Bank 17,950 Owned Putnam Valley, NY Putnam Valley Office 925 S. Lake Boulevard The Mahopac National Bank 3,460 Owned Mahopac, NY Loan Center 1441 Route 22 The Mahopac National Bank 34,000 Owned Brewster, NY Brewster Office </TABLE> - - -------------------------------------------------------------------------------- * Lease terminations for the Company's leased properties range from 2000 through 2042. ** Office includes two parcels of land that are being leased through 2004, and 2090, respectively. Management believes the current facilities are suitable for their present and intended purposes. 5
ITEM 3. LEGAL PROCEEDINGS The Company is involved in legal proceedings in the normal course of business, none of which are expected to have a material adverse impact on the financial condition or operations of the Company. ITEM 4. SUBMISSION OF MATTERS FOR A VOTE BY SECURITIES HOLDERS There were no matters submitted for shareholder vote in the fourth quarter of 2000. 6
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITIES <TABLE> <CAPTION> MARKET PRICE** CASH MARKET PRICE & DIVIDEND INFORMATION HIGH LOW DIVIDENDS PAID** - - ------------------------------------------------------------------------------------------------- See Notes 1 and 2 below: <S> <C> <C> <C> <C> 2000 1st Quarter $29.13 $22.63 $.27 2nd Quarter 26.06 23.13 .27 3rd Quarter 29.06 23.75 .27 4th Quarter 29.00 26.75 .27 1999 1st Quarter $35.88 $33.75 $.25 2nd Quarter 34.25 31.75 .25 3rd Quarter 35.50 30.69 .26 4th Quarter 31.50 28.25 .27 </TABLE> Note 1 - The range of reported high and low price for Tompkins Trustco, Inc. common stock for actual transactions as quoted on the American Stock Exchange. As of March 16, 2001, there were approximately 1,650 shareholders of record. Note 2 - Dividends on Tompkins Trustco, Inc. common stock were paid on the 15th day of March, June, September, and December of each year. ITEM 6. SELECTED FINANCIAL DATA <TABLE> <CAPTION> YEAR ENDED DECEMBER 31 (dollar amounts in thousands except per share data) 2000 1999 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> FINANCIAL STATEMENT HIGHLIGHTS Assets $ 1,304,894 $ 1,188,679 $ 954,705 $ 886,846 $ 836,397 Deposits 1,034,901 974,239 733,644 693,905 635,649 Other borrowings 67,257 42,012 48,973 34,817 23,150 Shareholders' equity 114,995 96,624 97,652 89,003 78,419 Interest and dividend income 92,018 77,617 69,729 66,265 61,427 Interest expense 40,076 30,551 29,371 28,235 25,359 Net interest income 51,942 47,066 40,358 38,030 36,068 Provision for loan/lease losses 1,216 944 1,539 1,436 1,493 Net securities gains (losses) 450 (59) (12) (48) 13 Net income 17,512 15,200 14,502 12,992 12,049 PER SHARE INFORMATION Basic earnings per share 2.47 2.15 2.05 1.91 1.70 Diluted earnings per share 2.45 2.12 2.01 1.84 1.66 Basic earnings per share-operating* 2.57 2.39 2.07 1.93 1.72 Diluted earnings per share-operating* 2.55 2.36 2.03 1.86 1.67 Cash dividends per share** 1.08 1.03 0.91 0.82 0.73 SELECTED RATIOS Return on average assets 1.42% 1.41% 1.57% 1.51% 1.50% Return on average equity 17.09% 15.46% 16.09% 15.95% 15.29% Return on average assets-operating* 1.48% 1.57% 1.59% 1.52% 1.52% Return on average equity-operating* 17.70% 16.91% 16.22% 16.10% 15.41% Shareholders' equity to average assets 9.31% 8.97% 10.60% 10.32% 9.79% Dividend payout ratio 43.95% 40.52% 37.92% 36.68% 36.65% OTHER SELECTED DATA (actual numerical count) - - ------------------------------------------------------------------------------------------------------------------------- Employees (average full-time equivalent) 462 442 365 361 356 Full-service banking offices 28 26 22 22 21 Bank access centers (ATMs) 41 36 33 32 30 - - ------------------------------------------------------------------------------------------------------------------------- </TABLE> - - ---------------- * Uses net income before amortization of intangible assets and one-time merger-related expenses, net of applicable tax benefit. ** Cash dividends per share and stock price reflect historical information for Tompkins Trustco, Inc. 7
<TABLE> <CAPTION> UNAUDITED QUARTERLY FINANCIAL DATA: 2000 - - ---------------------------------------------------------------------------------------------------------------------- (in thousands except per share data) FIRST SECOND THIRD FOURTH - - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Interest and dividend income $21,792 $22,598 $23,599 $24,029 Interest expense 8,964 9,567 10,690 10,855 Net interest income 12,828 13,031 12,909 13,174 Provision for loan/lease losses 240 274 301 401 Income before income taxes 6,464 6,282 6,644 6,374 Net income 4,326 4,188 4,572 4,426 Net income per common share (basic) .62 .60 .64 .61 Net income per common share (diluted) .61 .60 .64 .60 - - ---------------------------------------------------------------------------------------------------------------------- 1999 - - ---------------------------------------------------------------------------------------------------------------------- (in thousands except per share data) FIRST SECOND THIRD FOURTH - - ---------------------------------------------------------------------------------------------------------------------- Interest income $17,233 $18,301 $20,756 $21,327 Interest expense 6,942 7,258 7,975 8,376 Net interest income 10,291 11,043 12,781 12,951 Provision for loan/lease losses 238 268 174 264 Income before income taxes 5,782 5,849 6,732 4,686 Net income 3,931 3,930 4,548 2,791 Net income per common share (basic) .56 .55 .64 .40 Net income per common share (diluted) .54 .55 .64 .39 - - ---------------------------------------------------------------------------------------------------------------------- </TABLE> 8
ITEM 7. MANAGEMENT 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 (the "Trust Company"), which traces its charter back to 1836. On December 31, 1999, the Company completed a merger with Letchworth Independent Bancshares Corporation ("Letchworth"), at which time Letchworth was merged with and into Tompkins. Upon completion of the merger, Letchworth's two subsidiary banks, The Bank of Castile and The Mahopac National Bank, became subsidiaries of Tompkins. The merger with Letchworth was accounted for as a pooling-of-interests, and accordingly all prior period financial information has been restated to present the combined financial condition and results of operations of both companies as if the merger had been in effect for all periods presented. On June 4, 1999, Letchworth acquired 70.17 percent of the outstanding common stock of The Mahopac National Bank in a cash transaction accounted for as a purchase. Accordingly, operating results for The Mahopac National Bank are not included for periods prior to June 4, 1999. Subsequent to June 4, 1999, net income of The Mahopac National Bank is included in Tompkins' net income based upon the percentage of Tompkins' ownership of The Mahopac National Bank. This transaction with The Mahopac National Bank resulted in a core deposit intangible of $3.5 million, which is being amortized over a ten year period, and goodwill of $2.5 million, which is being amortized over a 20 year period. Effective September 1, 2000, and early in 2001, Tompkins Trustco, Inc. completed the purchase of the minority interest in The Mahopac National Bank, primarily in a stock-for-stock transaction accounted for as a purchase. Prior to September 1, 2000, the approximately 30 percent interest in The Mahopac National Bank, which was not owned by Tompkins, was shown as a minority interest in consolidated subsidiaries on the consolidated statements of condition. Subsequent to September 1, 2000, effectively all of the net income of The Mahopac National Bank is included in Tompkins' consolidated net income. The approximately 30% acquisition of The Mahopac National Bank resulted in a core deposit intangible of $1.9 million, which is being amortized over a 10 year period, and goodwill of $2.5 million, which is being amortized over a 20 year period. 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., a wholly-owned subsidiary of Tompkins. The agencies are expected to continue operating in their current western New York locations, which include Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia. The purchase agreements for the insurance agencies include provisions for additional consideration to be paid in the form of Company stock if certain income targets are met by Tompkins Insurance Agencies, Inc. in 2001 and 2002. The contingent consideration includes 25,093 shares, which are payable if the income targets are met, and an additional 8,333 shares which are payable if income targets are exceeded by 5%. Additional information on the Company's merger and acquisition activities is discussed in Note 2 to the consolidated financial statements. The following analysis is intended to provide the reader with a further understanding of the consolidated financial condition and results of operations of the Company and its operating subsidiaries for the periods shown. For a full understanding of this analysis, it should be read in conjunction with the consolidated financial statements and notes thereto. FORWARD-LOOKING STATEMENTS This report may include forward-looking statements with respect to revenue sources, growth, market risk, and corporate objectives. The Company assumes no duty, and specifically disclaims any obligation, to update forward-looking statements, and cautions that these statements are subject to numerous assumptions, risk, and uncertainties, all of which could change over time. Actual results could differ materially from forward-looking statements. RESULTS OF OPERATIONS Operating earnings, which exclude amortization of intangible assets and one-time merger-related expenses, were $18.3 million for the year ended December 31, 2000, up 8 percent from 1999 operating earnings of $16.9 million. Earnings reported in accordance with Generally Accepted Accounting Principles (GAAP) were $17.5 million in 2000, up 15.2 percent over 1999. Similar growth was seen in per share earnings, as 2000 diluted operating earnings per share of $2.55 reflect an 8.3 percent increase over 1999. Diluted earning per share reported in accordance with GAAP increased by 15.6 percent to $2.45 in 2000, from $2.12 in 1999. Basic earnings per share were 2.47 in 2000, compared to 2.15 in 1999. The Company's strong earnings performance in 2000 is attributable to the success of the core business strategies of the Company and its community banking subsidiaries, which include diversified revenue sources consisting of net interest income generated from the loan and securities portfolios, trust and investment services income, and other service charges and fees for providing banking and related financial services. Although net interest income remains the Company's primary revenue source, management continues to focus on growing revenue from noninterest related sources. 9
TABLE 1 - AVERAGE STATEMENTS OF CONDITION AND NET INTEREST ANALYSIS <TABLE> <CAPTION> DECEMBER 31 - - ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE (dollar amounts in thousands) BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> ASSETS Interest-earning assets: Securities (1) U.S. Government securities $242,611 $15,929 6.57% $210,598 $13,751 6.53% $204,357 $13,545 6.63% State and municipal (2) 78,474 5,654 7.20% 75,531 5,463 7.23% 67,613 5,222 7.72% Other securities (2) 13,715 1,142 8.33% 24,858 1,580 6.36% 26,455 1,657 6.26% - - ----------------------------------------------------------------------------------------------------------------------------------- Total securities 334,800 22,725 6.79% 310,987 20,794 6.69% 298,425 20,424 6.84% Federal funds sold 11,992 726 6.05% 17,717 980 5.53% 12,018 632 5.26% Loans, net of unearned income (3) Residential real estate 326,139 25,488 7.82% 274,321 21,049 7.67% 216,479 17,422 8.05% Commercial real estate 161,104 16,402 10.18% 138,882 12,464 8.97% 107,204 10,164 9.48% Commercial loans (2) 183,736 16,602 9.04% 122,288 11,855 9.69% 113,595 11,263 9.92% Consumer and other 108,912 10,785 9.90% 123,655 11,233 9.08% 109,442 10,784 9.85% Lease financing 17,315 1,368 7.90% 15,602 1,249 8.01% 12,438 1,002 8.06% - - ----------------------------------------------------------------------------------------------------------------------------------- Total loans, net of unearned income 797,205 70,645 8.86% 674,748 57,850 8.57% 559,158 50,635 9.06% - - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-earning 1,143,997 94,096 8.23% 1,003,452 79,624 7.94% 869,601 71,691 8.24% assets - - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-earning assets 91,040 74,122 51,587 Total assets $1,235,037 $1,077,574 $921,188 =================================================================================================================================== LIABILITIES & SHAREHOLDERS' EQUITY Deposits: Interest-bearing deposits Interest checking, savings, and money market $ 412,864 $10,311 2.50% $361,115 $8,436 2.34% $294,188 $7,459 2.54% Time Deposits > $100,000 167,149 10,205 6.11% 149,124 7,565 5.07% 125,329 6,905 5.51% Time Deposits < $100,000 220,402 11,977 5.43% 186,603 9,206 4.93% 174,853 9,395 5.37% - - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing 800,415 32,493 4.06% 696,842 25,207 3.62% 594,370 23,759 4.00% deposits Federal funds purchased and securities sold under agreements to repurchase 68,305 3,996 5.85% 60,662 2,852 4.70% 60,391 3,110 5.15% Other borrowings 59,125 3,587 6.07% 49,966 2,492 4.99% 44,444 2,502 5.63% - - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 927,845 40,076 4.32% 807,470 30,551 3.78% 699,205 29,371 4.20% - - ----------------------------------------------------------------------------------------------------------------------------------- Non-interest bearing deposits 186,505 154,803 120,036 Accrued expenses and other 13,444 15,555 11,487 liabilities - - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,127,794 977,828 830,728 Minority Interest 4,791 1,404 324 Shareholders' equity 102,452 98,342 90,136 - - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,235,037 $1077,574 $921,188 =================================================================================================================================== Interest rate spread 3.92% 4.16% 4.04% - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income/margin on earning assets $54,020 4.72% $49,073 4.89% $42,320 4.87% - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> (1) Average balances and yields on available-for-sale securities are based on amortized cost. (2) Interest income includes the tax effects of taxable-equivalent adjustments using a combined New York State and federal effective income tax rate of 40 percent in 2000 and 1999, and 41 percent in 1998, to increase tax-exempt interest income to a taxable equivalent basis. (3) Nonaccrual loans are included in the average loan totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 of the consolidated financial statements. 10
Return on average shareholders' equity (ROE) was 17.09 percent in 2000, compared to 15.46 percent in 1999, and 16.09 percent in 1998. The decline in ROE in 1999 was due to one-time merger-related expenses related to the Letchworth merger. Operating ROE (using operating earnings) was 17.70 percent in 2000, 16.91 percent in 1999, and 16.22 percent in 1998. Return on average assets (ROA) was 1.42 percent in 2000, 1.41 percent in 1999, and 1.57 percent in 1998. Operating ROA was 1.48 percent in 2000, 1.57 percent in 1999, and 1.59 percent in 1999. NET INTEREST INCOME Table 1 illustrates the trend in average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each. Tax-equivalent net interest income improved to $54.0 million in 2000, up from $49.1 million in 1999, and $42.3 million in 1998. The growth was supported by an increased volume of earning assets, which grew by 14.0 percent in 2000, following growth of 15.4 percent in 1999. Growth in average earning assets between year-end 1999 and year-end 2000 was primarily centered in the loan portfolio, which included a $61.4 million increase in average commercial loans, and a $51.8 million increase in average residential real estate loans. Net interest income also benefited from an improved mix of earning assets and interest-bearing liabilities. Average loans for 2000 increased to 69.7 percent of average earning assets, compared to 67.2 percent in 1999, while average core deposits (total deposits, less time deposits of $100,000 or more) improved to 56.2 percent of average liabilities in 2000, compared to 56.0 percent in 1999. The $85.5 million increase in average core deposits from 1999 to 2000 was primarily centered in the Company's two newest branches - the Brewster Office of The Mahopac National Bank, which opened in the first quarter of 2000; and the Chili Office of The Bank of Castile, which opened in the second quarter of 1999. The Company's net interest margin declined slightly in 2000 to 4.72 percent, down from 4.89 percent in 1999. The net interest margin in 2000 was negatively impacted by rising short term interest rates, which resulted in an inverted yield curve for much of 2000, whereby short term interest rates exceeded longer term interest rates. Additionally, the net interest margin has experienced downward pressure due to the competitive environment for loans and deposits in the markets in which the Company competes. The long term impact of these economic and competitive factors is likely to result in continued narrowing of net interest margins for the Company, and the industry as a whole. Nevertheless, management feels that recent acquisitions have improved the Company's competitive position as it relates to net interest margin by providing additional sources of lower cost core deposits and creating an improved balance sheet mix with less interest rate risk exposure. Changes in net interest income occur from a combination of changes in the volume of interest-earning assets and interest-bearing liabilities, and the rate of interest earned or paid on them. Table 2 illustrates changes in interest income and interest expense attributable to changes in volume (change in average balance multiplied by prior year rate), changes in rate (change in rate multiplied by prior year volume), and the net change in net interest income. The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of the change. The $4.9 million increase in tax-equivalent net interest income from 1999 to 2000 included a $14.5 million increase in interest income, which was partially offset by a $9.5 million increase in interest expense. An increased volume of earning assets resulted in a $7.1 million increase in net interest income between 1999 and 2000, while the impact from changes in interest rates resulted in a $2.2 million reduction in net interest income. Between 1998 and 1999, net interest income increased by $6.8 million, with a $7.9 million increase in interest income offset by a $1.2 million increase in interest expense. An increased volume of earning assets contributed $7.2 million to the increase in net interest income, which was offset by a $492,000 decline in net interest income due to an unfavorable rate variance. 11
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST INCOME <TABLE> <CAPTION> (dollar amounts in thousands)(taxable equivalent) 2000 VS. 1999 1999 VS. 1998 - - ----------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) DUE INCREASE (DECREASE) DUE TO CHANGE IN AVERAGE TO CHANGE IN AVERAGE VOLUME RATE TOTAL VOLUME RATE TOTAL - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> INTEREST INCOME: Federal funds sold ($340) $86 ($254) $ 314 $ 34 $ 348 Investments: Taxable 1,393 325 1,718 299 (183) 116 Tax-exempt 200 13 213 595 (341) 254 Loans, net: Taxable 10,794 2,001 12,795 9,770 (2,573) 7,197 Tax-exempt 4 (4) 0 22 (4) 18 - - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income $12,051 $2,421 $14,472 $11,000 ($3,067) $7,933 - - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest bearing deposits: Interest checking, savings, and money market 1,265 610 1,875 1,600 (623) 977 Time 2,783 2,628 5,411 1,849 (1,378) 471 Federal funds purchased and securities sold under agreements to repurchase 389 755 1,144 14 (272) (258) Other borrowings 502 593 1,095 292 (302) (10) - - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense $4,939 $4,586 $9,525 $3,755 ($2,575) $1,180 - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income $7,112 ($2,165) $4,947 $7,245 ($492) $6,753 - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> Notes: See notes to Table 1. 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 was $1.2 million in 2000, $944,000 in 1999, and $1.5 million in 1998. The increase in 2000 is primarily due to growth in the loan portfolio. Although, recent industry trends (as reported by the FDIC) indicate deterioration in asset quality for the commercial banking industry as a whole, the Company's loan portfolio remains of generally high quality, as evidenced by the low level of nonperforming loans and declining trends in net charge-offs. Nonperforming loans and leases were $4.7 million at December 31, 2000, representing a modest 0.56 percent of total loans and leases outstanding at year-end. Nonperforming loans and leases at year-end 1999 were $4.3 million, also representing 0.56 percent of total loans and leases. Net charge-offs of $620,000 in 2000 represented 0.08 percent of average loans during the period, compared to net charge-offs of $632,000 in 1999, representing 0.09 percent of average loans and leases. OTHER INCOME Other income, excluding sales of securities, has increased steadily as a percentage of revenue (net interest income, plus other income) from 19 percent in 1998, to 20 percent in 1999, to 21 percent in 2000. Although net interest income remains the primary revenue source for the Company, competitive, regulatory, and economic conditions have led management to target other income opportunities as an important driver of long-term revenue growth. Management believes a continued focus on noninterest income will improve the Company's ability to compete with non-bank competitors, and reduce earnings volatility that may result from changes in the general interest rate environment. The success of this strategy is evident, as other income increased by 22 percent in 2000, 21 percent in 1999, and 19 percent in 1998. Other income of $14.4 million for the year ended December 31, 2000, reflects an increase of $2.6 million over 1999. A portion of the growth is attributable to the fact that other income of The Mahopac National Bank is included for the full year in 2000, and only seven months in 1999. If income from The Mahopac National Bank were included for the full year in 1999, the growth in 2000 would have been approximately $2.1 million, or approximately 17.4 percent. Through the Trust Company, the Company has invested significant resources in developing fee income producing products and services. Many of these products and services can be offered to customers of The Bank of Castile and The Mahopac National Bank, thereby expanding the customer base for these products. The process of marketing these products throughout the Tompkins organization was started in 2000 and is expected to continue in 2001 and beyond, creating continued opportunities for growth in noninterest income. 12
Income from trust and investment services remains the largest source of other income. The Tompkins Investment Services Division of Tompkins Trust Company generates fee income through managing trust and investment relationships, managing estates, providing custody services, and managing employee benefits plans. Trust and investments services income of $4.6 million in 2000 represents an 11 percent increase over 1999. Trust and investment services income grew by 8 percent from 1998 to 1999. Increased fee income is attributable to the continued growth in average assets managed by, or in the custody of, Tompkins Investment Services. Income generated by Tompkins Investment Services is largely based on the value of the assets managed by the division, which can be affected by general trends in the stock market, as well as the amount of new business generated. Total assets managed by, or in custody of, Tompkins Investment Services had a market value of $1.1 billion at December 31, 2000 and 1999, compared to $952.9 million at December 31, 1998. Tompkins Investment Services remains important to future revenue growth of the Company. Services are primarily provided to customers in the Trust Company's market area of Tompkins County and surrounding areas, although the division currently manages assets for clients in more than 40 states. In 2001, Tompkins Investment Services expects to expand its presence in the markets served by The Bank of Castile and The Mahopac National Bank. In 1997, the Company expanded the reach of Tompkins Investment Services by offering trust and investment services through a "Trust Alliance" program, through which the Company provides servicing and administrative support to trust departments of other banks. The Company currently has Trust Alliances with two non-affiliated community banks, which have assets under management totaling $54.0 million at December 31, 2000. Card services, included in other service charges on the consolidated statements of income, have been another growth area for the Company, as technology has created opportunities to provide customers with new products to better serve their needs. Card services products include traditional credit cards, purchasing cards, debit cards, automated teller machines (ATM), and merchant card processing. Fee income associated with card services increased 31 percent in 2000 to $2.1 million, following growth of 56.7 percent in 1999. Other income includes a $956,000 increase in cash surrender value of corporate owned life insurance, up from $723,000, in 1999, and $66,000 in 1998. This income is exempt from taxes. The corporate owned life insurance was purchased primarily in the third and fourth quarters of 1998, and relates to life insurance provided to certain senior officers. Increases in the cash surrender value of the insurance are reflected as other operating income, and the related mortality expense is recognized as an other operating expense. Although income associated with the insurance policies is not included in interest income, increases in the cash surrender value produced a tax-adjusted return of approximately 7.9 percent in 2000, and 8.1 percent in 1999. The recent acquisitions of Austin, Hardie, Wise, Inc. and Ernest Townsend & Sons, Inc., (effective January 1, 2001) will provide an additional source of noninterest income and enhance the Company's ability to serve its customers with a full range of financial products and services. OTHER EXPENSE The Company's 2000 other expenses increased 13.1 percent, over 1999, to $38.8 million. Operating expenses, which excludes amortization of intangible assets and one-time merger expense, increased 17.1 percent. The $5.5 million increase in operating expenses is partially attributable to the fact that expenses of The Mahopac National Bank are included for the full year in 2000, and only seven months in 1999. If expenses of The Mahopac National Bank were included for the full year in 1999, the growth in 2000 would have been approximately $3.3 million, or approximately 9.9 percent. The increase in 2000 also includes approximately $1.1 million of increased expenses associated with two branch office openings -- the Chili Office of The Bank of Castile (opened in the third quarter of 1999), and the Brewster Office of The Mahopac National Bank (opened in the first quarter of 2000). The Company's efficiency ratio (operating expense divided by tax-equivalent net interest income plus other income before securities gains and losses) was 55.1 percent in 2000, 52.6 percent in 1999, and 50.9 percent in 1998. The increase in 2000 is primarily due to increased expenses associated with the opening of the Chili Office of The Bank of Castile and the Brewster Office of The Mahopac National Bank. Personnel-related expenses comprise the largest segment of other expense, representing approximately 57 percent of operating expenses in 2000, compared to approximately 58 percent in 1999, and 57 percent in 1998. Total personnel-related expenses increased by $2.9 million in 2000, to $21.5 million. If expenses of The Mahopac National Bank were included for the full year in 1999, the increase in 2000 would have been approximately $1.6 million, or approximately 8.2 percent. Expense for premises, furniture, and fixtures increased to $5.0 million in 2000, from $4.1 million in 1999. The increase in 2000 is primarily due to increased expenses associated with the opening of the Chili Office of The Bank of Castile and the Brewster Office of The Mahopac National Bank. Approximately $277,000 of the increase relates to the fact that expenses of The Mahopac National Bank are included for the full year in 2000, and only seven months in 1999. 13
Amortization of intangible assets for 2000 includes $885,000 of amortization expense related to core deposit intangible assets and approximately $250,000 of amortization expense related to goodwill. Merger-related expenses in 1999 of $1.5 million are primarily related to investment banking services and other professional services associated with the Letchworth merger. Other expenses included, among other things, fees paid for marketing services, postage and courier services, telephone expense, donations, software maintenance and amortization, and card services related expense. The increase from $9.5 million in 1999 to $11.2 million in 2000, is attributable to several factors, including: normal increases associated with growth in noninterest revenue, increased marketing costs associated with new branch openings, increased technology investments including improved internet banking services, and approximately $611,000 related to the fact that expenses of The Mahopac National Bank are included for the full year in 2000, and only seven months in 1999. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES Minority interest expense represents the portion of net income in consolidated majority-owned subsidiaries that is attributable to the minority owners of the subsidiary. Minority interest expense for 2000 includes $433,000 related to the approximate 30 percent interest held by minority owners of The Mahopac National Bank for the period from January 1, 2000, through September 1, 2000. Effective September 1, 2000, the Company acquired the interest held by the minority owners. Minority interest expense for 1999 includes $403,000 related to the minority owners of The Mahopac National Bank for the period from June 3, 1999, through December 31, 1999. The Company also had minority interest expense of $135,000 in 2000, and $155,000 in 1999 related to minority interests in three real estate investment trusts, which are substantially owned by the Company's banking subsidiaries. INCOME TAX EXPENSE The provision for income taxes provides for Federal and New York State income taxes. The 2000 provision was $8.3 million, compared to $7.8 million in 1999, and $7.2 million in 1998. The increasing trend is primarily due to increased levels of taxable income. The effective tax rate for 2000 was 32.0 percent, compared to 34.1 percent in 1999, and 33.3 percent in 1998. 14
FINANCIAL CONDITION During 2000, total assets grew by 9.8 percent to $1.3 billion, compared to $1.2 billion at December 31, 1999. Table 3 provides a comparison of average and year-end balances of selected balance sheet categories over the past three years, and the change in those balances between 1999 and 2000. Earning asset growth in 2000 consisted of a $90.4 million increase in loans, offset by a $3.0 million decline in the amortized cost of securities. Asset growth was funded primarily with core deposits, which increased by $57.1 million, including $33.3 million related to new branch openings. Asset growth was also supported by a $25.2 million increase in borrowings, and a $14.4 million increase in securities sold under agreements to repurchase. <TABLE> <CAPTION> TABLE 3 - BALANCE SHEET COMPARISONS AVERAGE BALANCE SHEET CHANGE (1999-2000) (dollar amounts in thousands) 2000 1999 1998 AMOUNT PERCENTAGE - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Total assets $1,235,037 $1,077,574 $921,188 $157,463 14.61% Earning assets* 1,143,997 1,003,452 869,601 140,545 14.01% Total loans and leases, less unearned income and net deferred costs and fees 797,205 674,748 559,158 122,458 18.15% Securities* 334,800 310,987 298,425 23,813 7.66% Core deposits 819,771 702,521 589,077 117,250 16.69% Time deposits of $100,000 and more 167,149 149,124 125,329 18,025 12.09% Federal funds purchased and securities sold under agreements to repurchase 68,305 60,662 60,391 7,643 12.60% Other borrowings 59,125 49,966 44,444 9,159 18.33% Shareholders' equity 102,452 98,342 90,136 4,110 4.18% - - ----------------------------------------------------------------------------------------------------------------------------------- ENDING BALANCE SHEET CHANGE (1999-2000) (dollar amounts in thousands) 2000 1999 1998 AMOUNT PERCENTAGE - - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $1,304,894 $1,188,679 $954,705 $116,215 9.78% Earning assets* 1,195,419 1,107,510 890,676 87,909 7.94% Total loans and leases, less unearned income and net deferred costs and fees 845,758 755,382 592,193 90,376 11.96% Securities* 330,236 333,278 279,633 (3,042) -0.91% Core deposits 851,449 794,303 594,914 57,146 7.19% Time deposits of $100,000 and more 183,452 179,936 138,730 3,516 1.95% Federal funds purchased and securities sold under agreements to repurchase 72,231 57,846 61,205 14,385 24.87% Other borrowings 67,257 42,012 48,973 25,245 60.09% Shareholders' equity 114,995 96,624 97,652 18,371 19.01% - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> * Balances of available-for-sale securities are shown at amortized cost. SHAREHOLDERS' EQUITY The consolidated statements of changes in shareholders' equity, included under Item 8 herein, detail the changes in equity capital, including payments to shareholders in the form of cash dividends. Per share cash dividends for 1999 and 1998 represent the historical per share dividends paid on Tompkins common stock, while the dollar amount of the dividends paid represents the cash dividends paid by the combined organization. The Company continued the long history of increasing cash dividends with a per share increase of 4.9 percent in 2000, which followed a 13.2 percent increase in 1999. Dividends per share amounted to $1.08 in 2000, compared to $1.03 in 1999, and $0.91 in 1998. Cash dividends paid represented 44 percent, 41 percent, and 38 percent of net income after tax in each of 2000, 1999, and 1998, respectively. Total shareholders' equity was $115.0 million at December 31, 2000, compared to $96.6 million at December 31, 1999, and $97.7 million at December 31, 1998. The $18.4 million increase from year-end 1999 to year-end 2000 included a $9.8 million increase in retained earnings and an $8.2 million increase from the issuance of shares to purchase the minority interest in The Mahopac National Bank. The $4.7 million of other comprehensive income was offset by $4.9 million in common stock repurchased and returned to unissued status. On August 15, 2000, the board of directors of the Company approved a repurchase plan (the "Plan") authorizing the repurchase of up to 400,000 shares of the Company's common stock over a 24 month period. As of December 31, 2000, 130,244 shares had been repurchased under the Plan at an average purchase price of $26.41 per share. 15
The decline in shareholders' equity from year-end 1998 to year-end 1999 was due primarily to a decline in the fair value of available-for-sale securities, as a result of rising interest rates in the second half of 1999. The decline in fair value of securities resulted in other comprehensive loss of $7.1 million for the year ended December 31, 1999. Shareholders' equity also declined by approximately $4.1 million in 1999 due to the repurchase of 128,731 shares of common stock. Shares repurchased in 1999 were partially offset by 71,786 net shares issued through the exercise of stock options. Tangible equity of $105.1 million represented 8.1 percent of tangible assets at December 31, 2000, compared to tangible equity of $90.4 million representing 7.6 percent of tangible assets as of December 31, 1999. Tangible book value per share increased from $12.78 at December 31, 1999, to $14.36 at December 31, 2000. The Company and its subsidiary banks are subject to quantitative capital measures established by regulation to ensure capital adequacy. Consistent with the objective of operating a sound financial organization, the Company and its subsidiary banks maintain capital ratios well above regulatory minimums, as detailed in Note 17 of the consolidated financial statements. SECURITIES The securities portfolio (excluding fair value adjustments on available-for-sale securities) at December 31, 2000 was $330.2 million, reflecting a decrease of 1 percent, from the previous year-end. Note 3 to the consolidated financial statements details the types of securities held, the carrying and fair values, and the contractual maturities. Qualified tax-exempt debt securities, primarily obligations of state and political subdivisions, were $72.3 million at December 31, 2000, or 21.9 percent of total securities, compared to $78.9 million, or 23.7 percent of securities at year-end 1999. Mortgage-backed securities, consisting solely of securities issued by U.S. government agencies, totaled $ 84.3 million at December 31, 2000, compared to $85.3 million at December 31, 1999. Management's policy is to purchase investment grade securities that, on average, have relatively short expected maturities. This policy helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital. A large percentage of securities are direct obligations of the Federal government and its agencies. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalty. At December 31, 2000, approximately 10 percent of total debt securities were scheduled to mature in one year or less. The maturity distribution of debt securities and mortgage-backed securities as of December 31, 2000, along with the weighted average yield of each category, is presented in Table 4. Balances are shown at amortized cost. <TABLE> <CAPTION> TABLE 4 - MATURITY DISTRIBUTION DUE AFTER ONE DUE AFTER FIVE DUE IN ONE YEAR THROUGH YEARS THROUGH DUE AFTER (dollar amounts in thousands) YEAR OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD TEN YEARS YIELD - - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> AVAILABLE-FOR-SALE:* U.S. Treasury securities and obligations of U.S. Government agencies $12,960 6.35% $47,421 6.41% $112,030 6.62% $73,891 6.99% Obligations of state and political subdivisions** $11,915 4.37% $19,817 4.81% $ 12,084 4.64% $ 2,616 4.89% - - -------------------------------------------------------------------------------------------------------------------------------- $24,875 5.40% $67,238 5.94% $124,114 6.43% $79,507 6.65% HELD-TO-MATURITY: Obligations of state and political subdivisions** $ 8,448 5.17% $10,669 5.16% $ 3,848 5.23% $ 2,897 5.49% - - -------------------------------------------------------------------------------------------------------------------------------- $ 8,448 5.17% $10,669 5.16% $ 3,848 5.23% $ 2,897 5.49% - - -------------------------------------------------------------------------------------------------------------------------------- TOTAL $33,323 5.33% $77,907 5.83% $127,962 6.39% $82,404 6.61% - - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> * Balances of available-for-sale securities are shown at amortized cost. * * Yields on obligations of state and political subdivisions are shown before tax-equivalent adjustments. 16
LOANS Total loans and leases, net of unearned income and net deferred loan fees and costs, grew 12.0 percent, to $845.8 million at December 31, 2000. Table 5 details the composition and volume changes in the loan portfolio over the past five years. <TABLE> <CAPTION> TABLE 5 - LOAN CLASSIFICATION SUMMARY DECEMBER 31 (Dollar amounts in thousands) 2000 1999 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Residential real estate $344,715 $312,506 $232,167 $208,455 $188,332 Commercial real estate 152,218 141,903 105,222 96,389 81,526 Real estate construction 18,746 19,046 9,064 5,267 1,203 Commercial 202,956 166,263 154,085 143,791 142,189 Consumer and other 110,126 99,206 78,018 70,678 72,132 Leases 19,565 18,850 15,691 14,313 12,740 - - ------------------------------------------------------------------------------------------------------------------------------ Total loans and leases 848,326 757,774 594,247 538,893 498,122 Less unearned income and net deferred cost and fees (2,568) (2,392) (2,054) (1,737) (1,416) - - ------------------------------------------------------------------------------------------------------------------------------ Total loans and leases, net of unearned income and deferred costs and fees $845,758 $755,382 $592,193 $537,156 $496,706 - - ------------------------------------------------------------------------------------------------------------------------------ </TABLE> Residential real estate loans grew by $32.2 million or 10.3 percent in 2000, and comprised 41 percent of total loans and leases. Residential real estate loan growth has exceeded 10 percent in each of the last five years. The Company occasionally sells some of its residential mortgage loans to Federal agencies and retains all servicing rights. The Company sold $7.2 million of residential mortgage loans in 2000, compared to $6.0 million in 1999. Mortgage servicing on sold loans continues to provide fee income. Residential mortgage loans serviced for others totaled $63.3 million at December 31, 2000, compared to $59.1 million at December 31, 1999. Commercial real estate loans increased by $10.3 million in 2000, or 7.3 percent. Commercial real estate loans of $152.2 million represented 18 percent of total loans and leases at December 31, 2000. Commercial loans totaled $203.0 million at December 31, 2000, an increase of 22 percent over 1999. Growth in commercial lending reflects an increased emphasis in commercial lending, which was supported by the opening of the Chili and Brewster offices, along with the 2000 opening of The Bank of Castile's Medina loan production office. The consumer loan portfolio includes personal installment loans, indirect automobile financing, credit card loans, and overdraft lines of credit. Consumer and other loans were $110.1 million at December 31, 2000, up from $99.2 million at December 31, 1999. Consumer loan growth was primarily concentrated in The Bank of Castile market area, and included $5.5 million of growth in indirect auto financing. The lease portfolio increased by 3.8 percent in 2000, to $19.6 million. The lease portfolio has traditionally consisted of leases on vehicles for consumers and small businesses. Competition for automobile financing has increased in recent years, resulting in a decline in the consumer lease portfolio. In response to the decline in consumer leasing opportunities, management has increased its marketing efforts relating to commercial leasing, which has been the primary source of growth in the lease portfolio. As of December 31, 2000, commercial leases represented 69 percent of total leases, compared to 58 percent at year-end 1999. THE RESERVE FOR LOAN/LEASE LOSSES Management reviews the adequacy of the reserve for loan/lease losses on a regular basis. Factors considered in determining the adequacy of the reserve and the related provision include: management's approach to granting new credit; the ongoing monitoring of existing credits by the internal loan review department; the growth and composition of the loan and lease portfolio; comments received during the course of independent examinations; current local economic conditions; past due and nonaccrual loan statistics; and a historical review of loan and lease loss experience. Based upon consideration of the above factors, management believes that the allowance for loan/lease losses is adequate to provide for the risk of loss inherent in the current loan and lease portfolio. Management uses a model to measure some of these factors and the resulting quantitative analysis, combined with qualitative assessments, comprise the basis on which the adequacy of the reserve for loan/lease losses is determined. The reserve for loan/lease losses increased by $596,000 from 1999 to 2000. The increase is a result of the provision for loan/lease losses exceeding the net loan losses for the year. The allocation of the Company's reserve for loan/lease losses for year-end 2000, and each of the previous four year-ends is illustrated in Table 6. 17
<TABLE> <CAPTION> TABLE 6 - ALLOCATION OF THE RESERVE FOR LOAN/LEASE LOSSES DECEMBER 31 (dollar amounts in thousands) 2000 1999 1998 1997 1996 - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> TOTAL LOANS OUTSTANDING AT END OF YEAR $845,758 $755,382 $592,193 $537,156 $496,706 - - ---------------------------------------------------------------------------------------------------------------------------------- ALLOCATION OF THE RESERVE BY LOAN TYPE: Commercial $ 2,526 3,281 1,906 981 699 Real estate 2,210 1,964 1,384 1,458 944 Consumer and all other 2,771 3,202 2,935 2,256 2,463 Unallocated 2,317 781 1,180 2,312 2,514 - - ---------------------------------------------------------------------------------------------------------------------------------- Total $ 9,824 $ 9,228 $ 7,405 $ 7,007 $ 6,620 - - ---------------------------------------------------------------------------------------------------------------------------------- ALLOCATION OF THE RESERVE AS A PERCENT OF TOTAL RESERVE: Commercial 26% 36% 26% 14% 11% Real estate 22% 21% 19% 21% 14% Consumer and all other 28% 35% 40% 32% 37% Unallocated 24% 8% 15% 33% 38% - - ---------------------------------------------------------------------------------------------------------------------------------- Total 100% 100% 100% 100% 100% - - ---------------------------------------------------------------------------------------------------------------------------------- LOAN/LEASE TYPES AS A PERCENT OF TOTAL LOANS/LEASES: Commercial 24% 22% 26% 27% 29% Real estate 61% 62% 59% 58% 55% Consumer and all other 15% 16% 15% 15% 16% - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL 100% 100% 100% 100% 100% - - ---------------------------------------------------------------------------------------------------------------------------------- Loans 90 days past due and accruing $ 226 $ 168 $ 507 $ 183 $ 400 Nonaccruing loans 4,134 3,698 1,611 3,425 2,486 Troubled debt restructurings not included above 389 400 471 483 428 Other real estate owned 175 214 235 244 128 - - ---------------------------------------------------------------------------------------------------------------------------------- RESERVE AS PERCENT OF LOANS OUTSTANDING AT END OF YEAR 1.16% 1.22% 1.25% 1.30% 1.33% - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> The reserve represented 1.16 percent of total loans and leases outstanding at year-end 2000, down slightly from 1.22 percent at December 31, 1999. The reserve coverage of nonperforming loans (loans past due 90 days and accruing, nonaccrual loans, and restructured troubled debt) declined slightly to 2.07 times at December 31, 2000, compared to 2.16 times at December 31, 1999. Management is committed to early recognition of loan problems and to maintaining an adequate reserve. Based upon management's review, the reserve is believed adequate to absorb probable losses in the portfolio. The above allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur nor is it an indicator of future loss trends. The allocation of the allowance to each category does not restrict the use of the allowances to absorb losses in any category. The Company's historical loss experience is detailed in Table 7. 18
TABLE 7 - ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES <TABLE> <CAPTION> (dollar amounts in thousands) 2000 1999 1998 1997 1996 - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Average loans outstanding during year $797,205 674,748 559,158 511,989 469,942 Balance of reserve at beginning of year 9,228 7,405 7,007 6,620 6,420 Allowance related to purchase acquisition N/A 1,511 N/A N/A N/A Loans charged-off, domestic: Commercial, financial, and agricultural 130 241 326 230 124 Real estate - mortgage 108 105 509 64 174 Installment loans to individuals 677 647 674 1,200 1,369 Lease financing 8 1 10 8 10 Other loans 106 114 70 69 59 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL LOANS CHARGED-OFF 1,029 1,108 1,589 1,571 1,736 - - ---------------------------------------------------------------------------------------------------------------------------------- RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF, DOMESTIC: Commercial, financial, and agricultural 28 62 69 74 61 Real estate - mortgage 31 49 4 3 7 Installment loans to individuals 317 343 349 412 348 Lease financing 2 0 5 4 7 Other loans 31 22 21 29 21 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL LOANS RECOVERED 409 476 448 522 444 - - ---------------------------------------------------------------------------------------------------------------------------------- Net loans charged-off 620 632 1,141 1,049 1,292 Additions to reserve charged to operations 1,216 944 1,539 1,436 1,492 - - ---------------------------------------------------------------------------------------------------------------------------------- Balance of reserve at end of year $ 9,824 9,228 7,405 7,007 6,620 - - ---------------------------------------------------------------------------------------------------------------------------------- Net charge-offs as percent of average loans outstanding during year 0.08% 0.09% 0.20% 0.20% 0.28% - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> DEPOSITS AND OTHER LIABILITIES Total deposits of $1.0 billion at December 31, 2000, reflect an increase of $60.7 million over total deposits at year-end 1999. Deposit growth consisted primarily of core deposits, which increased by $57.1 million, while time deposits of $100,000 or more grew by $3.5 million. The Company's Chili and Brewster offices contributed $10.7 million and $34.8 million, respectively to deposit growth in 2000. The Company's liability for securities sold under agreements to repurchase ("repurchase agreements") amounted to $72.2 million at December 31, 2000, representing a $14.4 million increase over year-end 1999. Repurchase agreements are arrangements with local customers of the Company, in which the Company agrees to sell securities to the customer with an agreement to repurchase those securities at a specified later date. Management generally views local repurchase agreements as an alternative to large time deposits. During 2000, the Company increased its borrowings from the Federal Home Loan Bank (FHLB) by $25.2 million, to $67.3 million. Borrowings outstanding at December 31, 2000, included $22 million in borrowings due in one year or less, and $45.1 million due in more than one year. The weighted average interest rate on borrowings due in more than one year was 6.22 percent at December 31, 2000. 19
LIQUIDITY MANAGEMENT The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy the demand for credit, deposit withdrawals, and business investment opportunities. The Company's large, stable core deposit base and strong capital position are the foundation for the Company's liquidity position. Asset and liability positions are monitored primarily through Asset/Liability Management Committees of the subsidiary banks, which review periodic reports on the liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. Core deposits remain the key funding source, representing 82 percent of total deposits, and 72 percent of total liabilities at December 31, 2000. Non-core funding sources (time deposits of $100,000 or more, repurchase agreements, and other borrowings) increased as a percentage of total liabilities from 26 percent at December 31, 1999, to 27 percent at December 31, 2000. Short-term investments consisting of securities with maturities of one year or less and Federal funds sold increased from $42.6 million at December 31, 1999, to $52.5 million at December 31, 2000. The ratio of short-term investments to short-term non-core liabilities increased from 17.0 percent at year-end 1999, to 19.5 percent at year-end 2000, indicating a slight decline in the volume of long-term assets supported by short-term non-core liabilities. Non-core funding sources may require securities to be pledged against the underlying liability. At December 31, 2000, securities pledged to secure certain large deposits, repurchase agreements, and other borrowings amounted to $261.5 million, compared to $249.3 million at December 31, 1999. Total securities pledged for deposits and repurchase agreements represented 79.2 percent of total securities at December 31, 2000, compared to 76.7 percent of total securities at December 31, 1999. Liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, negotiable certificates of deposit, and FHLB advances. Through its subsidiary banks, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. At December 31, 2000, the unused borrowing capacity on established lines with the FHLB was $116.9 million. As members of the FHLB, the Company's subsidiary banks can use unencumbered mortgage-related assets to secure additional borrowings from the FHLB. At December 31, 2000, total qualifying real estate assets of the Company were $496.9 million. Cash flow from the loan and investment portfolios provides a significant source of liquidity. These assets may have stated maturities in excess of one year, but have monthly principal reductions. Total mortgage-backed securities increased from $83.2 million at year-end 1999, to $84.3 million at year-end 2000. Investments in residential mortgage loans, consumer loans, and leases totaled approximately $474.4 million at December 31, 2000. Aggregate amortization from monthly payments on these assets provides significant cash flow to the Company. Table 8 details total scheduled maturities of selected loan categories. <TABLE> <CAPTION> TABLE 8 - LOAN MATURITY REMAINING MATURITY OF SELECTED LOANS AT DECEMBER 31, 2000 (dollar amounts in thousands) TOTAL WITHIN 1 YEAR 1-5 YEARS AFTER 5 YEARS - - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Commercial real estate $152,218 7,630 9,014 135,574 Real estate construction 18,746 3,455 913 14,378 Commercial 202,954 60,502 42,722 99,730 - - ------------------------------------------------------------------------------------------------------------- TOTAL $373,883 71,587 52,649 249,647 - - ------------------------------------------------------------------------------------------------------------- </TABLE> RECENT ACCOUNTING STANDARDS ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those assets at fair value. Changes in fair value of the derivative financial instruments are reported as either net income or as a component of comprehensive income, depending on whether or not it qualifies from hedge accounting. Consequently, there may be increased volatility in net income and shareholders' equity as a result of accounting for derivatives in accordance with SFAS No. 133. Special hedge accounting treatment is permitted only if specific criteria are met, including a requirement that the hedging relationship be highly effective both at inception and on an ongoing basis. Results of effective hedges are recognized in current earnings for fair value hedges, in other comprehensive income for cash flow hedges. Ineffective portions of hedges are recognized immediately in earnings and are not deferred. The adoption of SFAS No. 133 by the Company on January 1, 2001, did not have a material effect on the Company's consolidated financial statements. 20
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION: In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation." FASB Interpretation No. 44 clarifies certain issues relating to the application of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees." FASB Interpretation No. 44 became effective on July 31, 2000, and the adoption of this interpretation did not have a material effect on the Company's consolidated financial position or results of operations. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES: In September 2000, The FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 replaces identically titled SFAS No. 125, and it carries forward most of SFAS No. 125's provisions without change. It does revise accounting standards for securitizations and certain other transfers of financial assets and collateral. The statement is generally applied prospectively to transactions and servicing activities occurring after March 31, 2001, although provisions with respect to collateral and certain disclosure requirements are effective for fiscal years ending after December 15, 2000. The adoption of this statement did not have a material impact on the consolidated financial statements of the Company. 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK MARKET RISK The Company's primary market risk exposure relates to sensitivity to interest rate changes. Interest rate sensitivity refers to the volatility in earnings, resulting from changes in interest rates. Each quarter the Asset/Liability Management Committees estimate the earnings impact of changes in interest rates. The findings of the committees are incorporated into investment and funding decisions, and in the business planning process. Table 9 is a Condensed Static Gap Report, which illustrates the anticipated repricing intervals of assets and liabilities as of December 31, 2000. The analysis reflects a liability sensitive position, suggesting that earnings would benefit from a declining interest rate environment and would be hindered by a rising rate environment. TABLE 9 - INTEREST RATE RISK ANALYSIS <TABLE> <CAPTION> CONDENSED STATIC GAP - DECEMBER 31, 2000 REPRICING INTERVAL CUMULATIVE (dollar amounts in thousands) TOTAL 0-3 MONTHS 3-6 MONTHS 6-12 MONTHS 12 MONTHS - - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Interest-earning assets* $1,195,419 $274,365 $54,871 $116,188 $445,424 Interest-bearing liabilities 965,824 429,142 75,959 105,119 610,220 - - --------------------------------------------------------------------------------------------------------------------------- Net gap position (154,777) (21,088) 11,069 (164,796) - - --------------------------------------------------------------------------------------------------------------------------- Net gap position as a percentage of total assets (11.86%) (1.62%) 0.85% (12.63%) - - --------------------------------------------------------------------------------------------------------------------------- </TABLE> * Balances of available-for-sale securities are shown at amortized cost. Management uses a simulation model to assess the potential impact from various interest rate movements. Based upon the simulation analysis performed as of December 31, 2000, a 200 basis point upward shift in interest rates over a one-year time frame would result in a one-year decline of approximately 3 percent in net interest income, assuming management takes no action to address balance sheet mismatches. The same simulation indicates that a 200 basis point decline in interest rates over a one-year period would increase net interest income by less than 1 percent. The simulation model is useful in identifying potential exposure to interest rate movements; however, management feels that certain actions could be taken to offset some of the negative effects of unfavorable movements in interest rates. Although the analysis reflects some exposure to rising interest rates, management feels the exposure is not significant in relation to the earnings and capital strength of the Company. Additional information regarding market risk of the Company's financial instruments at December 31, 2000 is provided in Table 10. <TABLE> <CAPTION> TABLE 10 - REPRICING INTERVALS OF SELECTED FINANCIAL INSTRUMENTS GREATER (dollar amounts in thousands) 0-1 YEAR 1-2 YEARS 2-3 YEARS 3-5 YEARS THAN 5 YEARS TOTAL FAIR VALUE - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> FINANCIAL ASSETS: Available-for-sale securities $ 58,170 $ 22,131 $ 34,349 $ 70,281 $119,427 $304,358 $304,358 Average interest rate* 6.27% 6.27% 7.73% 7.17% 7.08% 6.96% Held-to-maturity securities 8,448 4,928 2,407 3,334 6,746 25,863 26,147 Average interest rate* 5.17% 5.16% 5.18% 5.05% 5.35% 5.2% Loans and Leases 375,645 123,818 102,882 110,658 132,755 845,758 846,555** Average interest rate* 9.45% 8.24% 8.27% 8.13% 8.02% 8.73% FINANCIAL LIABILITIES: Time deposits $373,647 $ 35,591 $ 5,592 $ 5,425 $ 0 $420,255 $420,458 Average interest rate 5.99% 6.15% 5.55% 5.74% 0% 5.99% Federal funds sold and securities sold under agreements to repurchase 72,231 0 0 0 0 72,231 72,231 Average interest rate 5.85% 0% 0% 0% 0% 5.85% Other borrowings 40,757 10,810 1,867 11,751 2,072 67,257 67,576 Average interest rate 6.08% 7.10% 6.64% 6.70% 5.87% 6.36% - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> * Interest rate on tax-exempt obligations is shown before tax-equivalent adjustments. ** Reflects fair value before allowance for loan/lease losses. 22
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA <TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CONDITION AS OF DECEMBER 31 (in thousands except share and per share data) 2000 1999 - - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS <S> <C> <C> Cash and noninterest bearing balances due from banks $ 45,939 $ 35,938 Federal funds sold 19,425 18,850 Available-for-sale securities, at fair value 304,358 294,199 Held-to-maturity securities, fair value of $26,147 at December 31, 2000 and $31,265 at December 31, 1999 25,863 30,975 Loans and leases, net of unearned income and deferred costs and fees 845,758 755,382 - - ---------------------------------------------------------------------------------------------------------------------------------- Less reserve for loan/lease losses 9,824 9,228 NET LOANS/LEASES 835,934 746,154 Bank premises and equipment, net 23,861 21,147 Corporate owned life insurance 18,581 13,267 Intangible assets 9,858 6,271 Accrued interest and other assets 21,075 21,878 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,304,894 $1,188,679 LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES, AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking, savings, and money market $ 406,081 $ 416,836 Time 420,255 376,371 Non-interest bearing 208,565 181,032 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,034,901 974,239 Securities sold under agreements to repurchase 72,231 57,846 Other borrowings 67,257 42,012 Other liabilities 14,020 11,766 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,188,409 1,085,863 - - ---------------------------------------------------------------------------------------------------------------------------------- Minority interest in consolidated subsidiaries 1,490 6,192 Shareholders' equity: Common stock - par value $0.10 per share: Authorized 15,000,000 shares; Issued 7,344,813 shares at December 31, 2000, and 7,099,606 shares at December 31, 1999 734 710 Surplus 44,182 40,548 Undivided profits 70,894 61,078 Accumulated other comprehensive loss (9) (4,745) Treasury stock at cost: 24,886 shares at December 31, 2000, and 27,663 shares at December 31, 1999 (473) (525) Unallocated ESOP: 32,261 shares at December 31, 2000, - - ---------------------------------------------------------------------------------------------------------------------------------- and 37,637 shares at December 31, 1999 (333) (442) - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 114,995 96,624 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES, AND SHAREHOLDERS' EQUITY $1,304,894 $1,188,679 - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> See notes to consolidated financial statements. 24
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31 (in thousands except per share data) 2000 1999 1998 - - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST AND DIVIDEND INCOME <S> <C> <C> <C> Loans $70,587 $57,790 $50,578 Federal funds sold 726 980 632 Available-for-sale securities 19,216 17,229 15,020 Held-to-maturity securities 1,489 1,618 3,499 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST AND DIVIDEND INCOME 92,018 77,617 69,729 - - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits: Time certificates of deposit of $100,000 or more 10,205 7,498 6,905 Other deposits 22,288 17,642 16,854 Federal funds purchased and securities sold under agreements to repurchase 3,996 2,919 3,110 Other borrowings 3,587 2,492 2,502 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 40,076 30,551 29,371 - - ---------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 51,942 47,066 40,358 LESS PROVISION FOR LOAN/LEASE LOSSES 1,216 944 1,539 - - ---------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN/LEASE LOSSES 50,726 46,122 38,819 OTHER INCOME Trust and investment services income 4,586 4,119 3,811 Service charges on deposit accounts 3,739 3,223 2,722 Other service charges 3,812 2,716 2,008 Increase in cash surrender value of corporate owned life insurance 956 723 66 Other operating income 882 1,083 1,160 Gain (loss) on sale of available-for-sale securities 450 (59) (12) - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER INCOME 14,425 11,805 9,755 - - ---------------------------------------------------------------------------------------------------------------------------------- OTHER EXPENSES Salaries and wages 17,354 15,131 12,358 Pension and other employee benefits 4,112 3,469 2,697 Net occupancy expense of bank premises 2,439 1,801 1,839 Net furniture and fixture expense 2,582 2,255 1,958 Amortization of intangible assets 1,135 687 239 Merger and acquisition-related expenses 0 1,463 0 Other operating expenses 11,197 9,514 7,765 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER EXPENSES 38,819 34,320 26,856 - - ---------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 26,332 23,607 21,718 Minority interest in consolidated subsidiaries 568 558 0 INCOME TAX EXPENSE 8,252 7,849 7,216 - - ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME $17,512 $15,200 $14,502 - - ---------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 2.47 $ 2.15 $ 2.05 Diluted earnings per share $ 2.45 $ 2.12 $ 2.01 - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> See notes to consolidated financial statements. 25
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31 (in thousands) 2000 1999 1998 - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> OPERATING ACTIVITIES Net income $ 17,512 $ 15,200 $ 14,502 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan/lease losses 1,216 944 1,539 Depreciation and amortization premises, equipment, and software 2,461 2,166 1,890 Amortization of intangible assets 1,135 687 239 Earnings from corporate owned life insurance (956) (723) (66) Net amortization on securities 17 266 287 Deferred income tax benefit (599) (576) (537) (Loss) gain on sale of securities (450) 59 12 Net gain on sales of loans (74) (27) (107) Proceeds from sale of loans 8,287 7,436 8,564 Net gain on sales of bank premises and equipment 3 (32) (11) Treasury stock issued 75 41 40 ISOP/ESOP shares released or committed to be released for allocation 159 384 507 Increase in interest receivable (1,419) (802) (420) (Decrease) increase in interest payable 1,271 (18) 35 Other, net (268) (2,127) 2,928 - - ---------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 28,370 22,878 29,402 - - ---------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from maturities of available-for-sale securities 39,768 82,381 86,514 Proceeds from sales of available-for-sale securities 9,393 12,983 26,237 Proceeds from maturities of held-to-maturity securities 10,750 12,296 19,018 Purchases of available-for-sale securities (50,955) (115,701) (115,231) Purchases of held-to-maturity securities (5,674) (6,766) (7,071) Net increase in loans/leases (99,209) (79,905) (64,636) Proceeds from sales of bank premises and equipment 33 74 25 Purchases of bank premises and equipment (5,547) (2,434) (2,184) Purchase of corporate owned life insurance (4,358) (815) (10,980) Net cash provided by acquisition of The Mahopac National Bank 0 4,258 0 - - ---------------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (105,799) (93,629) (68,308) - - ---------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase in demand deposits, money market accounts, and savings accounts 16,778 58,059 21,416 Net increase in time deposits 43,884 40,701 18,323 Net (decrease) increase in securities sold under agreements to repurchase and federal funds purchased 14,385 (3,359) 1,533 Net (decrease) increase in other borrowings 25,245 (6,961) 14,156 Cash dividends (7,696) (6,159) (5,499) Repurchase of common shares (4,870) (4,101) (2,138) Net proceeds from exercise of stock options, warrants, and related tax benefit 288 691 281 Cash paid in lieu of fractional Letchworth common shares (9) 0 0 - - ---------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 88,005 78,871 48,072 - - ---------------------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 10,576 8,120 9,166 - - ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 54,788 46,668 37,502 - - ---------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 65,364 $ 54,788 $ 46,668 - - ---------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION: Cash paid during the year for: Interest $ 38,805 $ 30,569 $ 29,410 Income taxes $ 9,307 $ 10,307 $ 5,221 Non-cash investing and financing activities: Change in net unrealized holding (loss) gain on available-for-sale securities $ 8,089 $ (11,814) $ 1,399 Fair value of non-cash assets acquired in purchase acquisition 60,034 143,298 0 Fair value of liabilities assumed in purchase acquisition 55,469 147,556 0 Shares issued for the acquisition of The Mahopac National Bank 8,176 0 0 See notes to consolidated financial statements. </TABLE> 26
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY <TABLE> <CAPTION> ACCUMULATED OTHER COMMON UNDIVIDED COMPREHENSIVE TREASURY UNALLOCATED (in thousands except share and per share data) STOCK SURPLUS PROFITS INCOME (LOSS) STOCK ISOP/ESOP TOTAL - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> BALANCES AT DECEMBER 31, 1997 $403 $45,522 $43,197 $1,383 $(571) $(931) $89,003 - - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net income 14,502 14,502 Other comprehensive income 956 956 -------- TOTAL COMPREHENSIVE INCOME 15,458 -------- Cash dividends ($.91 per share) (5,499) (5,499) Exercise of stock options, and related tax benefit (33,215 shares, net) 3 278 281 Treasury stock issued (1,180 shares) 17 23 40 Treasury stock purchased and returned to unissued status by pooled company (59,490 shares) (5) (1,549) (1,554) Common stock repurchased and returned to unissued status (17,245 shares) (1) (583) (584) ISOP/ESOP shares released or committed to be released for allocation (16,182 shares) 243 264 507 Effect of stock splits in the form of stock dividends 317 (154) (163) 0 - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1998 $717 $43,774 $52,037 $2,339 $(548) $(667) $97,652 - - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net income 15,200 15,200 Other comprehensive loss (7,084) (7,084) -------- TOTAL COMPREHENSIVE INCOME 8,116 -------- Cash dividends ($1.03 per share) (6,159) (6,159) Exercise of stock options, and related tax benefit (71,786 shares, net) 7 684 691 Treasury stock issued (1,226 shares) 18 23 41 Treasury stock purchased and returned to unissued status by pooled company (9,465 shares) (1) (215) (216) Common stock repurchased and returned to unissued status (119,266 shares) (13) (3,872) (3,885) ISOP/ESOP shares released or committed to be released for allocation (14,164 shares) 159 225 384 - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1999 $710 $40,548 $61,078 $(4,745) $(525) $(442) $96,624 - - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net income 17,512 17,512 Other comprehensive income 4,736 4,736 --------- TOTAL COMPREHENSIVE INCOME 22,248 --------- Cash paid in lieu of fractional Letchworth common shares (9) (9) Cash dividends ($1.08 per share) (7,696) (7,696) Exercise of stock options and related tax benefit (16,208 shares, net) 2 286 288 Treasury stock issued (2,777 shares) 23 52 75 Common stock repurchased and returned to unissued status (185,696 shares) (19) (4,851) (4,870) ESOP shares released or committed to be released for allocation (5,376 shares) 50 109 159 Shares issued for purchase acquisition (415,000 shares) 41 8,135 8,176 - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 2000 $734 $44,182 $70,894 $(9) $(473) $(333) $114,995 - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> See notes to consolidated financial statements. 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: Tompkins Trustco, Inc. ("Tompkins" or "the Company") is a Financial Holding Company, organized under the laws of New York State, and is the parent company of three wholly-owned community banking subsidiaries - - -Tompkins Trust Company (the "Trust Company"), The Bank of Castile, and The Mahopac National Bank. The consolidated financial information included herein combines the results of operations, the assets, liabilities, and shareholders' equity (including comprehensive income) of the Company and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclose contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Amounts in the prior years' consolidated financial statements are reclassified when necessary to conform with the current year's presentation. CASH EQUIVALENTS: Cash equivalents in the consolidated statements of cash flows include cash and noninterest bearing balances due from banks and Federal funds sold. SECURITIES: Management determines the appropriate classification of debt and equity securities at the time of purchase. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity and marketable equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value with the unrealized gains and losses, net of tax, excluded from earnings and reported as a separate component of accumulated comprehensive income or loss, in shareholders' equity. Premiums and discounts are amortized or accreted over the expected life of the related security as an adjustment to yield using the interest method. Dividend and interest income are recognized when earned. Realized gains and losses on the sale of securities are included in securities gains (losses). The cost of securities sold is based on the specific identification method. A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. LOANS AND LEASES: Loans are reported at their principal outstanding balance, net of deferred loan origination fees and costs, and unearned income. The Company has the ability and intent to hold its loans for the foreseeable future, except for education loans which are sold to a third party from time to time upon reaching repayment status. The Company provides motor vehicle and equipment financing to its customers through direct financing leases. These leases are carried at the aggregate of lease payments receivable, plus estimated residual values, less unearned income. Unearned income on direct financing leases is amortized over the lease terms, resulting in a level rate of return. RESERVE FOR LOAN/LEASE LOSSES: The reserve for loan/lease losses is regularly evaluated by management in order to maintain the reserve at a level consistent with the inherent risk of loss in the loan and lease portfolios. Management's evaluation of the adequacy of the reserve is based upon a review of the Company's historical loss experience, known and inherent risks in the loan and lease portfolios, the estimated value of collateral, the level of nonperforming loans, and trends in delinquencies. External factors, such as the level and trend of interest rates and the national and local economies, are also considered. Management believes that the reserve for loan/lease losses is adequate. Management considers a loan to be impaired if, based on current information, it is probable that the Company will be unable to collect all scheduled payments of principal or interest when due, according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan or, as a practical expedient, at the observable market price or the fair value of collateral if the loan is collateral dependent. Management excludes large groups of smaller balance homogeneous loans such as residential mortgages, consumer loans, and leases, which are collectively evaluated. All loans and leases restructured in a troubled debt restructuring are also considered impaired loans. Impairment losses are included in the reserve for loan/lease losses through a charge to the provision for loan/lease losses. INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS AND LEASES: Loans and leases, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well secured and in the process of collection. Loans that are past due less than 90 days may also be classified as nonaccrual if repayment in full of principal or interest is in doubt. Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable time period, and there is a sustained period of repayment performance by the borrower in accordance with the contractual terms of the loan agreement. Payments received on loans carried as nonaccrual are generally applied as a reduction to principal. When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. 28
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) OTHER REAL ESTATE OWNED: Other real estate owned consists of properties formerly pledged as collateral to loans, which have been acquired by the Company through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Other real estate owned is carried at the lower of the recorded investment in the loan or the fair value of the real estate, less estimated costs to sell. Upon transfer of a loan to foreclosure status, an appraisal is obtained and any excess of the loan balance over the fair value, less estimated costs to sell, is charged against the reserve for loan/lease losses. Expenses and subsequent adjustments to the fair value are treated as other operating expense. BANK PREMISES AND EQUIPMENT: Land is carried at cost. Bank premises and equipment are stated at cost, less allowances for depreciation. The provision for depreciation for financial reporting purposes is computed generally by the straight-line method at rates sufficient to write-off the cost of such assets over their estimated useful lives. Bank premises are amortized over a period of 10-39 years, and furniture, fixtures, and equipment are amortized over a period of 2-20 years. Maintenance and repairs are charged to expense as incurred. INCOME TAXES: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. GOODWILL AND CORE DEPOSIT INTANGIBLE: Goodwill represents the excess of purchase price over the fair value of assets acquired in a transaction using purchase accounting. Core deposit intangible represents a premium paid to acquire a base of stable low cost deposits in the acquisition of a bank, or a bank branch, using purchase accounting. The amortization period of goodwill ranges from 10 years to 20 years, and the amortization period for core deposit intangible ranges from 5 years to 10 years. The amortization periods are monitored to determine if circumstances require such period to be reduced. The Company periodically reviews its intangible assets for changes in circumstances that may indicate the carrying amount of the asset is impaired. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: Securities sold under agreements to repurchase (repurchase agreements) are agreements in which the Company transfers the underlying securities to a third-party custodian's account that explicitly recognizes the Company's interest in the securities. The agreements are accounted for as secured financing transactions provided the Company maintains effective control over the transferred securities and meets other criteria as specified in Statement of Financial Accounting Standards (SFAS) No. 125. The Company's agreements are accounted for as secured financings; accordingly, the transaction proceeds are reflected as liabilities and the securities underlying the agreements continue to be carried in the Company's securities portfolio. TREASURY STOCK: The cost of treasury stock is shown on the consolidated statements of condition as a separate component of shareholders' equity, and is a reduction to total shareholders' equity. Shares are released from treasury at fair value, with any gain or loss on the sale reflected as an adjustment to shareholders' equity. All shares currently carried in treasury are the result of a single purchase; therefore, the cost basis for shares released is equal to the actual cost. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: In the normal course of business the Company is party to certain financial instruments with off-balance-sheet risk such as commitments under stand-by letters of credit, unused portions of lines of credit, and commitments to fund new loans. The Company's policy is to record such instruments when funded. TRUST AND INVESTMENT SERVICES DIVISION: Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated statements of condition, since such items are not assets of the Company. Fees associated with providing trust and investment services are included in other income. EARNINGS PER SHARE: Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding during the year plus the maximum dilutive effect of stock issuable upon conversion of stock options and warrants. CASH DIVIDENDS PER SHARE: Cash dividends per share reflect actual historical information for Tompkins Trustco, Inc. SEGMENT REPORTING: The Company's operations are solely in the financial services industry and include the provisions of traditional commercial banking services. The Company operates primarily in the geographical areas in the proximity of its branch locations in New York State. Operating decisions are made based upon a review of the Company's traditional banking services, which constitute the Company's only reportable segment. COMPREHENSIVE INCOME: For the Company, comprehensive income represents net income plus the net change in unrealized gains or losses on securities available for sale for the period (net of taxes), and is presented in the consolidated statements of changes in shareholders' equity. Accumulated other comprehensive income represents the net unrealized gains or losses on securities available for sale (net of tax) as of the dates of the consolidated statements of condition. STOCK BASE COMPENSATION: 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. Statement of Financial Accounting Standards (SFAS) No. 133 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. 29
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Company adopted the provisions of Financial Accounting Standards Board (FASB) SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those assets at fair value. Changes in fair value of the derivative financial instruments are reported as either net income or as a component of comprehensive income, depending on whether or not it qualifies from hedge accounting. Consequently, there may be increased volatility in net income and shareholders' equity as a result of accounting for derivatives in accordance with SFAS No. 133. Special hedge accounting treatment is permitted only if specific criteria are met, including a requirement that the hedging relationship be highly effective both at inception and on an ongoing basis. Results of effective hedges are recognized in current earnings for fair value hedges, in other comprehensive income for cash flow hedges. Ineffective portions of hedges are recognized immediately in earnings and are not deferred. The adoption of SFAS No. 133 by the Company on January 1, 2001, did not have a material effect on the Company's consolidated financial statements. ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION: In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation." FASB Interpretation No. 44 clarifies certain issues relating to the application of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees." FASB Interpretation No. 44 became effective on July 31, 2000, and the adoption of this interpretation did not have a material effect on the Company's consolidated financial position or results of operations. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES: In September 2000, The FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 replaces identically titled SFAS No. 125, and it carries forward most of SFAS No. 125's provisions without change. It does revise accounting standards for securitizations and certain other transfers of financial assets and collateral. The statement is generally applied prospectively to transactions and servicing activities occurring after March 31, 2001, although provisions with respect to collateral and certain disclosure requirements are effective for fiscal years ending after December 15, 2000. The adoption of this statement did not have a material impact on the consolidated financial statements of the Company. 30
NOTE 2 MERGERS AND ACQUISITIONS LETCHWORTH INDEPENDENT BANCSHARES CORPORATION ACQUISITION On December 20, 1999, the shareholders of Tompkins Trustco, Inc. and Letchworth Independent Bancshares Corporation ("Letchworth") approved a merger between the two companies. Effective December 31, 1999, Letchworth was merged with and into Tompkins, and each issued and outstanding share of Letchworth common stock was converted into 0.685 shares of Tompkins common stock, plus cash in lieu of any fractional shares. This merger resulted in the issuance of approximately 2.3 million additional shares of Tompkins common stock, bringing Tompkins' total outstanding shares to approximately 7.1 million shares immediately following the merger. Letchworth was the holding company for The Bank of Castile, Castile, New York, and The Mahopac National Bank, Mahopac, New York. The Bank of Castile will continue to operate its community banking business as a wholly-owned subsidiary of Tompkins. The Bank of Castile conducts its operations through its main office located in Castile, New York, and at its eleven branch offices in towns situated in and around the areas commonly known as the Letchworth State Park area and the Genesee Valley region of New York State. In 1999, The Bank of Castile opened its first branch office in Monroe County. The Mahopac National Bank will continue to operate its community banking business as a majority-owned subsidiary of Tompkins. Immediately following the Letchworth merger, Tompkins owned 70 percent of The Mahopac National Bank outstanding common stock. As noted below, Tompkins subsequently purchased the additional remaining shares of The Mahopac National Bank, such that at December 31, 2000, Tompkins effectively owned all of The Mahopac National Bank outstanding common stock. The Mahopac National Bank is located in Putnam County, New York, and operates four bank branches in that county. As a result of the merger, the Company incurred one-time merger-related expenses of approximately $1.5 million ($1.3 million after tax impact), which were recognized in the fourth quarter of 1999. The expenses related primarily to fees for professional services and also include fees for data processing conversion and certain employment-related costs. The merger qualified as a tax-free reorganization and was accounted for as a pooling-of-interests. All historical financial information in this annual report has been restated for the combination of the two companies. The following table presents the results of operations for the years ended December 31, 1999 and 1998, as reported by each of the companies, and on a combined basis: <TABLE> <CAPTION> YEAR ENDED DECEMBER 31 (dollar amounts in thousands, except per share) 1999 1998 - - ------------------------------------------------------------------------------------------------------ <S> <C> <C> Net interest income: Tompkins $29,111 $28,231 Letchworth 17,955 12,127 - - ------------------------------------------------------------------------------------------------------ COMBINED $47,066 $40,358 Net income: Tompkins $11,865 $11,189 Letchworth 3,335 3,313 - - ------------------------------------------------------------------------------------------------------ COMBINED $15,200 $14,502 Basic earnings per share: Tompkins $ 2.46 $ 2.31 Letchworth $ 1.01 $ 1.01 - - ------------------------------------------------------------------------------------------------------ COMBINED $ 2.15 $ 2.05 Diluted earnings per share: Tompkins $ 2.43 $ 2.27 Letchworth $ 1.00 $ .99 - - ------------------------------------------------------------------------------------------------------ COMBINED $ 2.12 $ 2.01 - - ------------------------------------------------------------------------------------------------------ </TABLE> 31
THE MAHOPAC NATIONAL BANK ACQUISITION On June 4, 1999, Letchworth acquired 70.17 percent of the outstanding common stock of The Mahopac National Bank in a cash transaction accounted for as a purchase. Accordingly, operating results for The Mahopac National Bank are not included for periods prior to June 4, 1999. Subsequent to June 4, 1999, net income of The Mahopac National Bank is included in Tompkins' net income based upon the percentage of Tompkins' ownership of The Mahopac National Bank . This transaction resulted in a core deposit intangible of $3.5 million, which is being amortized over a ten year period, and goodwill of $2.5 million, which is being amortized over a 20 year period. Effective September 1, 2000, and early in 2001, Tompkins completed the purchase of the minority interest in The Mahopac National Bank, primarily in a stock-for-stock transaction accounted for as a purchase. Prior to September 1, 2000, the approximately 30% interest in The Mahopac National Bank, which was not owned by Tompkins, was shown as a minority interest in consolidated subsidiaries on the consolidated statements of condition. Subsequent to September 1, 2000, effectively all of the net income of The Mahopac National Bank is included in Tompkins' consolidated net income. The approximately 30% acquisition of The Mahopac National Bank resulted in a core deposit intangible of $1.9 million, which is being amortized over a 10 year period, and goodwill of $2.5 million, which is being amortized over a 20 year period. The table below presents the pro forma combined results of operations of Tompkins and The Mahopac National Bank, as if Mahopac had been 100% owned for all periods presented. <TABLE> <CAPTION> YEAR ENDED DECEMBER 31 (dollar amounts in thousands, except per share) 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME: - - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> As reported $51,942 $47,066 $40,358 Pro forma combined $51,942 49,928 46,615 NET INCOME: - - ------------------------------------------------------------------------------------------------------------------------ As reported $17,512 $15,200 $14,502 Pro forma combined 17,818 15,866 14,896 BASIC EARNINGS PER SHARE: - - ------------------------------------------------------------------------------------------------------------------------ As reported $ 2.47 $ 2.15 $ 2.05 Pro forma combined 2.41 2.12 1.99 DILUTED EARNINGS PER SHARE: - - ------------------------------------------------------------------------------------------------------------------------ As reported $ 2.45 $ 2.12 $ 2.01 Pro forma combined 2.40 $ 2.09 $ 1.95 - - ------------------------------------------------------------------------------------------------------------------------ </TABLE> The pro forma combined financial information does not reflect any potential cost savings or revenue enhancements that are expected to result from the merger and acquisitions. Accordingly, the pro forma combined financial information may not be indicative of operations that would have been achieved had the merger and acquisitions occurred on the dates indicated, nor do they purport to be indicative of the results of operations that may be achieved in the future. AUSTIN, HARDIE, WISE AGENCY, INC. AND ERNEST TOWNSEND & SON, INC. ACQUISITIONS 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., a wholly-owned subsidiary of Tompkins. The agencies are expected to continue operating in their current western New York locations, which include Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia. The acquisition has been accounted for as a purchase transaction, with the $3.92 million excess of the purchase price over the fair value of identifiable assets acquired less liabilities assumed recorded as goodwill and amortized on a straight-line basis over fifteen years. The purchase agreements for the insurance agencies include provisions for additional consideration to be paid in the form of Company stock if certain income targets are met by Tompkins Insurance Agencies, Inc. in 2001 and 2002. The contingent consideration includes 25,093 shares, which are payable if the income targets are met, and an additional 8,333 shares which are payable if income targets are exceeded by 5%. 32
<TABLE> <CAPTION> NOTE 3 SECURITIES The following summarizes securities: AVAILABLE-FOR-SALE SECURITIES - - ---------------------------------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 2000 (in thousands) COST GAINS LOSSES VALUE - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government agencies $160,470 $ 103 $ 503 $160,070 Obligations of states and political subdivisions 46,432 696 190 46,938 Mortgage-backed securities 84,342 340 376 84,306 U.S. corporate securities 4,489 4 25 4,468 - - ---------------------------------------------------------------------------------------------------------------------------------- Total debt securities 295,733 1,143 1,094 295,782 - - ---------------------------------------------------------------------------------------------------------------------------------- Equity securities 8,640 0 64 8,576 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL AVAILABLE-FOR-SALE SECURITIES $304,373 $1,143 $1,158 $304,358 ================================================================================================================================== Available-for-sale securities includes $7,089,000 in equity securities, which are carried at amortized cost since fair values are not readily determinable. This figure includes $6,270,000 of Federal Home Loan Bank Stock. Substantially all of the above mortgage-backed securities are direct pass through securities issued or backed by Federal agencies. HELD-TO-MATURITY SECURITIES - - ---------------------------------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 2000 (in thousands) COST GAINS LOSSES VALUE - - ---------------------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $25,863 $284 $0 $26,147 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL HELD-TO-MATURITY DEBT SECURITIES $25,863 $284 $0 $26,147 ================================================================================================================================== AVAILABLE-FOR-SALE SECURITIES - - ---------------------------------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 1999 (in thousands) COST GAINS LOSSES VALUE - - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. Government agencies $156,763 $ 63 $6,025 $150,801 Obligations of states and political subdivisions 47,943 325 628 47,640 Mortgage-backed securities 85,340 50 2,204 83,186 U.S. corporate securities 4,486 7 25 4,468 - - ---------------------------------------------------------------------------------------------------------------------------------- Total debt securities 294,532 445 8,882 286,095 - - ---------------------------------------------------------------------------------------------------------------------------------- Equity securities 7,771 333 0 8,104 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL AVAILABLE-FOR-SALE SECURITIES $302,303 $778 $8,882 $294,199 - - ---------------------------------------------------------------------------------------------------------------------------------- Available-for-sale securities includes $6,665,000 in equity securities, which are carried at amortized cost since fair values are not readily determinable. This figure includes $5,039,000 of Federal Home Loan Bank Stock. Substantially all of the above mortgage-backed securities are direct pass through securities issued or backed by Federal agencies. HELD-TO-MATURITY SECURITIES - - ---------------------------------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 1999 (in thousands) COST GAINS LOSSES VALUE - - ---------------------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $30,975 $349 $59 $31,265 - - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL HELD-TO-MATURITY DEBT SECURITIES $30,975 $349 $59 $31,265 - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> 33
NOTE 3 SECURITIES (continued) The amortized cost and fair value of debt securities by contractual maturity are shown in the following table. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. <TABLE> <CAPTION> AMORTIZED FAIR DECEMBER 31, 2000 (in thousands) COST VALUE - - ------------------------------------------------------------------------------------------------------ <S> <C> <C> Available-for-sale securities: Due in one year or less $ 24,612 $ 24,630 Due after one year through five years 62,656 62,870 Due after five years through ten years 113,506 113,362 Due after ten years 10,617 10,615 - - ------------------------------------------------------------------------------------------------------ TOTAL 211,391 211,477 - - ------------------------------------------------------------------------------------------------------ Mortgage-backed securities 84,342 84,306 Equity securities 8,640 8,576 - - ------------------------------------------------------------------------------------------------------ TOTAL AVAILABLE-FOR-SALE SECURITIES $304,373 $304,358 ====================================================================================================== AMORTIZED FAIR DECEMBER 31, 2000 (in thousands) COST VALUE - - ------------------------------------------------------------------------------------------------------ Held-to-maturity securities: Due in one year or less $ 8,448 $ 8,484 Due after one year through five years 10,669 10,813 Due after five years through ten years 3,848 3,945 Due after ten years 2,897 2,905 - - ------------------------------------------------------------------------------------------------------ TOTAL HELD-TO-MATURITY DEBT SECURITIES $ 25,863 $ 26,147 ====================================================================================================== </TABLE> Realized gains on available-for-sale securities were $453,000 in 2000, $37,000 in 1999, and $89,000 in 1998; realized losses on available-for-sale securities were $3,000 in 2000, $96,000 in 1999, and $101,000 in 1998. At December 31, 2000, securities with a carrying value of $261,503,000 were pledged to secure public deposits (as required by law), and securities were sold under agreements to repurchase (see also Note 9). Except for U.S. government securities, there were no holdings, when taken in aggregate, of any single issuer that exceeded 10 percent of shareholders' equity at December 31, 2000. NOTE 4 COMPREHENSIVE INCOME Comprehensive income for the three years ended December 31, 2000, is summarized below: <TABLE> <CAPTION> DECEMBER 31 (in thousands) 2000 1999 1998 - - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Net income $17,512 $ 15,200 $14,502 - - -------------------------------------------------------------------------------------------------------------------------------- Net unrealized holding gain (loss) on available-for-sale securities during the year. Pre-tax net unrealized holding gain (loss) was $8,539 in 2000, $(11,873) in 1999, and $1,387 in 1998. 5,006 (7,119) 948 Reclassification adjustment for net realized (gain) loss on sale of available-for-sale securities (pre-tax net gain of $450 in 2000, and pre-tax net loss of $59 in 1999, and $12 in 1998). (270) 35 8 - - -------------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) 4,736 (7,084) 956 - - -------------------------------------------------------------------------------------------------------------------------------- TOTAL COMPREHENSIVE INCOME $22,248 $ 8,116 $15,458 ================================================================================================================================ </TABLE> 34
NOTE 5 LOAN/LEASE CLASSIFICATION SUMMARY AND RELATED PARTY TRANSACTIONS Loans/Leases at December 31 were as follows: <TABLE> <CAPTION> (in thousands) 2000 1999 - - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> Residential real estate $344,715 $312,506 Commercial real estate 152,218 141,903 Real estate construction 18,746 19,046 Commercial 202,956 166,263 Consumer and other 110,126 99,206 Leases 19,565 18,850 - - ----------------------------------------------------------------------------------------------------------------- Total loans and leases 848,326 757,774 - - ----------------------------------------------------------------------------------------------------------------- Less unearned income and net deferred costs and fees (2,568) (2,392) - - ----------------------------------------------------------------------------------------------------------------- TOTAL LOANS AND LEASES, NET OF UNEARNED INCOME AND DEFERRED COSTS AND FEES $845,758 $755,382 ================================================================================================================= </TABLE> Directors and officers of the Company and its affiliated companies were customers of, and had other transactions with, the Company in the ordinary course of business. Such loans and commitments were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than normal risk of collectibility or present other unfavorable features. Loan transactions with related parties are summarized as follows: <TABLE> <CAPTION> (in thousands) 2000 1999 - - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> Balance January 1 $5,438 $5,855 Related party loans associated with purchase acquisition 0 576 Former Directors/Executive Officers (1,133) 0 New Executive Officers 96 0 New loans and advances 2,138 4,324 Loan payments (2,436) (5,317) - - ---------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31 $4,104 $5,438 </TABLE> During 2000, the Company sold $1,068,000 of education loans and $7,194,000 of mortgage loans, realizing net gains of $73,000. During 1999, the Company sold $1,401,000 of student loans and $6,035,000 of mortgage loans, realizing a net gain of $27,000. During 1998, the Company sold $6,877,000 in student loans and $1,687,000 in mortgage loans, realizing a net gain of $107,000. Net gains and losses on the sale of loans are included in other operating income on the Company's consolidated statements of income. There were no loans held for sale at December 31, 2000, or 1999. At December 31, 2000, the Company serviced mortgage loans for third parties aggregating $63,250,000, compared to $59,145,000 at December 31, 1999. The Company's loan/lease customers are located primarily in the upstate New York communities served by its three subsidiary banks. The Trust Company operates eleven full-service banking offices in the counties of Tompkins and Schuyler. The Bank of Castile operates twelve branch offices in towns situated in and around the areas commonly known as the Letchworth State Park area and the Genesee Valley region of New York State. The Mahopac National Bank is located in Putnam County, and operated four full-service branches in that county on December 31, 2000. Other than general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower. 35
NOTE 6 RESERVE FOR LOAN/LEASE LOSSES Changes in the reserve for loan/lease losses are summarized as follows: <TABLE> <CAPTION> (in thousands) 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Reserve at beginning of year $9,228 $7,405 $7,007 Allowance related to purchase acquisition 0 1,511 0 Provisions charged to operations 1,216 944 1,539 Recoveries on loans/leases 409 476 448 Loans/leases charged-off (1,029) (1,108) (1,589) - - ------------------------------------------------------------------------------------------------------------------------------- RESERVE AT END OF YEAR $9,824 $9,228 $7,405 =============================================================================================================================== </TABLE> The Company's recorded investment in loans/leases that are considered impaired totaled $2,710,000 at December 31, 2000, and $2,371,000 at December 31, 1999. The average recorded investment in impaired loans/leases was $1,636,000 in 2000, $828,000 in 1999, and $1,592,000 in 1998. The December 31, 2000, recorded investment in impaired loans/leases includes $1,882,000 of loans/leases that had related reserves of $706,000. The recorded investment in impaired loans/leases at December 31, 1999, included $2,059,000 of loans/leases which had related reserves of $786,000. Interest income recognized for cash payments received on impaired loans/leases was $94,000 for 2000, $103,000 for 1999, and was not material to the accompanying financial statements for 1998. The principal balance nonperforming loans/leases, including impaired loans/leases, are detailed in the table below. <TABLE> <CAPTION> DECEMBER 31 (in thousands) 2000 1999 - - ---------------------------------------------------------------------------------------------------- <S> <C> <C> Loans 90 days past due and accruing $ 226 $ 168 Nonaccruing loans 4,134 3,698 Troubled debt restructurings not included above 389 400 - - ---------------------------------------------------------------------------------------------------- NONPERFORMING LOANS/LEASES $4,749 $4,266 ==================================================================================================== </TABLE> The difference between the interest income that would have been recorded if these loans/leases had been paid in accordance with their original terms and the interest income recorded for the three-year period ended December 31, 2000, was not significant. NOTE 7 BANK PREMISES AND EQUIPMENT Bank premises and equipment at December 31 were as follows: <TABLE> <CAPTION> (in thousands) 2000 1999 - - ------------------------------------------------------------------------------------------------------ <S> <C> <C> Land $ 3,229 $ 3,148 Bank premises 22,271 19,409 Furniture, fixtures, and equipment 18,758 17,574 Accumulated depreciation and amortization (20,397) (18,984) - - ------------------------------------------------------------------------------------------------------ $ 23,861 $ 21,147 ====================================================================================================== Depreciation and amortization expense in 2000, 1999, and 1998 are included in operating expenses as follows: (in thousands) 2000 1999 1998 - - ----------------------------------------------------------------------------------------------------------------------- Bank premises $ 808 $ 702 $ 474 Furniture, fixtures, and equipment 1,501 1,420 1,193 - - ----------------------------------------------------------------------------------------------------------------------- $ 2,309 $2,122 $1,667 ======================================================================================================================= </TABLE> 36
NOTE 8 DEPOSITS The aggregate time deposits of $100,000 or more were $183,452,000 at December 31, 2000, and $179,936,000 at December 31, 1999. Scheduled maturities of time deposits at December 31, 2000, were as follows: <TABLE> <CAPTION> LESS THAN $100,000 (in thousands) $100,000 AND OVER TOTAL - - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Maturity: Three months or less $ 73,216 $124,774 $197,990 Over three through six months 58,684 34,120 92,804 Over six through twelve months 66,146 16,707 82,853 - - ------------------------------------------------------------------------------------------------------------------------------- Total due in 2001 198,046 175,601 373,647 2002 28,923 6,668 35,591 2003 5,058 534 5,592 2004 3,655 505 4,160 2005 and thereafter 1,121 144 1,265 - - ------------------------------------------------------------------------------------------------------------------------------- $236,803 $183,452 $420,255 =============================================================================================================================== </TABLE> NOTE 9 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Information regarding securities sold under agreements to repurchase as of December 31, 2000, is summarized below: <TABLE> <CAPTION> (dollar amounts in thousands) COLLATERAL SECURITIES REPURCHASE LIABILITY - - ---------------------------------------------------------------------------------------------------------------------------------- ESTIMATED WEIGHTED AVERAGE CARRYING FAIR INTEREST AMOUNT VALUE AMOUNT RATE - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Maturity/Type of Asset 2 to 30 days: U.S. Government agency securities $ 14 $ 14 $ 14 6.35% Mortgage-backed securities N/A N/A N/A N/A Obligations of states and political subdivisions 165 170 93 6.35% 31 to 89 days: U.S. Treasury securities 564 551 526 5.85% Mortgage-backed securities 161 162 159 6.15% Obligations of states and political subdivisions 220 216 831 6.44% U.S. Government agency securities 44 43 43 6.44% Over 90 days: Mortgage-backed securities 343 337 333 5.00% Obligations of states and political subdivisions 145 152 276 6.28% Demand: U.S. Treasury securities 1,499 1,505 1,500 6.45% U.S. Government agency securities 28,110 28,202 28,178 6.43% Corporate bonds 3,000 2,975 3,000 5.65% Mortgage-backed securities 37,792 37,524 37,278 5.40% - - ---------------------------------------------------------------------------------------------------------------------------------- $72,057 $71,851 $72,231 5.85% ================================================================================================================================== </TABLE> 37
NOTE 9 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Continued) At December 31, 2000, substantially all of the above securities were held by the Bank of New York or the Federal Reserve Bank of New York. Additional information regarding securities sold under agreements to repurchase and federal funds purchased for the years ended December 31, is detailed in the table below: <TABLE> <CAPTION> SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (dollar amounts in thousands) 2000 1999 1998 - - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Total outstanding at December 31 $72,231 $57,846 $61,205 Maximum month-end balance 75,525 60,662 66,079 Average balance during the year 61,207 56,453 57,379 Weighted average rate at December 31 5.85% 5.07% 5.38% - - -------------------------------------------------------------------------------------------------------------------------------- Average interest rate paid during year 5.73% 4.76% 5.12% ================================================================================================================================ FEDERAL FUNDS PURCHASED (dollar amounts in thousands) 2000 1999 1998 - - -------------------------------------------------------------------------------------------------------------------------------- Total outstanding at December 31 $ 0 $ 0 $ 0 Maximum month-end balance 18,000 13,500 13,500 Average balance during the year 7,098 4,201 3,012 Weighted average rate at December 31 N/A N/A N/A Average interest rate paid during year 6.85% 5.27% 5.74% ================================================================================================================================ </TABLE> NOTE 10 OTHER BORROWINGS The Company, through its subsidiary banks, had available lines-of-credit agreements with banks permitting borrowings to a maximum of approximately $29,500,000 at December 31, 2000, and December 31, 1999. No advances were outstanding against those lines at December 31, 2000, or 1999. All bank subsidiaries are members of the Federal Home Loan Bank (FHLB) and as such, may apply for advances secured by certain residential mortgage loans and other assets, provided that certain standards for credit worthiness have been met. At December 31, 2000, the Company, through its subsidiaries, had established unused lines of credit with the FHLB of $116,915,000. At December 31, 2000, there were $67,117,000 in term advances from the FHLB, compared to $41,912,000 at December 31, 1999. FHLB term advances due in one year or less as of December 31, 2000, and 1999, are detailed in the table below: <TABLE> <CAPTION> FEDERAL HOME LOAN BANK ADVANCES: (dollar amounts in thousands) 2000 1999 - - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> Due in one year or less: Total outstanding at December 31 $22,000 $10,000 Maximum month-end balance 32,000 10,000 Average balance during the year 18,030 2,285 Average interest rate paid during year 6.74% 5.46% ============================================================================================================ </TABLE> At December 31, 2000, there were advances due in more than one year of $45,117,000, with a weighted average rate of 6.22 percent. Maturities of advances included $11,000,000 maturing in 2002, $12,717,000 in 2004, $10,000,000 in 2005, $833,000 in 2006, and $10,567,000 in 2010. The Company's FHLB borrowings at December 31, 2000, include $30,000,000 in fixed-rate callable borrowings, which can be called by the FHLB on the first anniversary of the borrowing, and quarterly thereafter. Other borrowings included a $140,000 Treasury Tax and Loan Note account with the Federal Reserve Bank of New York at December 31, 2000, and $100,000 at December 31, 1999. 38
NOTE 11 EMPLOYEE BENEFIT PLANS The Company maintains a noncontributory defined-benefit pension plan covering substantially all employees of the Trust Company and The Bank of Castile. The benefits are based on years of service and a percentage of the employees' average compensation. Prior to October 1, 2000, the Company maintained two noncontributory defined benefit plans, Tompkins County Trust Company Retirement Plan and Bank of Castile Employees Retirement Plan. Effective October 1, 2000, the Company amended and merged these two plans. Assets of the Company's defined benefit plan are invested in common and preferred stock, U. S. Government securities, corporate bonds and notes, and mutual funds. The plan assets at December 31, 2000, included 56,518 shares of Tompkins common stock. The Trust Company also offers post-retirement medical coverage and life insurance coverage to full-time employees who have worked ten years and attained age 55. Medical coverage is contributory with contributions reviewed annually. The Trust Company assumes the majority of the cost for these other benefits, while retirees share some of the cost through co-insurance and deductibles. The following table sets forth the changes in the plans' benefit obligation and plan assets, and the plans' funded status and amounts recognized in the Company's consolidated statements of condition at December 31, 2000 and 1999. For purposes of this disclosure the defined-benefit pension plans which existed at December 31, 1999 have been combined. At December 31, 1999, the Trust Company had a prepaid benefit cost of $2,396,000 and The Bank of Castile had an accrued benefit cost of $207,000. <TABLE> <CAPTION> PENSION BENEFITS OTHER BENEFITS - - ----------------------------------------------------------------------------------------------------------------------------------- (dollar amounts in thousands) 2000 1999 2000 1999 - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Change in benefit obligation: Benefit obligation at beginning of year $ 16,983 $ 17,375 $ 3,391 $ 3,114 Service cost 704 646 98 88 Interest cost 1,258 1,134 259 227 Amendments (2,500) 0 0 0 Actuarial (gain) loss 1,892 (1,396) 160 141 Benefits paid (1,379) (776) (183) (179) - - ----------------------------------------------------------------------------------------------------------------------------------- BENEFIT OBLIGATION AT END OF YEAR $ 16,958 $ 16,983 $ 3,725 $ 3,391 - - ----------------------------------------------------------------------------------------------------------------------------------- Change in plan assets Fair value of plan assets at beginning of year $ 17,533 $ 16,207 $ 0 $ 0 Actual return on plan assets 1,231 1,523 0 0 Employer contribution 729 579 183 178 Benefits paid (1,379) (776) (183) (178) - - ----------------------------------------------------------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 18,114 $ 17,533 $ 0 $ 0 - - ----------------------------------------------------------------------------------------------------------------------------------- Funded status $ 1,156 $ 550 $ (3,725) $ (3,391) Unrecognized net actuarial loss (gain) 3,801 1,781 151 (9) Net transition (asset) obligation (195) (301) 1,386 1,502 Unrecognized prior service cost (2,429) 159 0 0 - - ----------------------------------------------------------------------------------------------------------------------------------- PREPAID (ACCRUED) BENEFIT COST $ 2,333 $ 2,189 $ (2,188) $ (1,898) - - ----------------------------------------------------------------------------------------------------------------------------------- Weighted-average assumptions as of December 31: Discount rate 7.50% 7.25% 7.50% 7.25% Expected return on plan assets 8.50% 8.50% NA NA Rate of compensation increase 4.00-5.00% 4.00% (1) 4.00% 4.00% - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> (1) The rate of compensation increase for The Bank of Castile was 5%. The Trust Company currently offers medical coverage and life insurance coverage to substantially all of its employees upon retirement. The weighted average annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) is 10 percent beginning in 2001, and is assumed to decrease gradually to 5.0 percent in 2010 and beyond. Increasing the assumed health care cost trend rates by 1 percent in each year would increase the accumulated post-retirement benefit obligation as of December 31, 2000, by $70,000 and the net periodic post-retirement benefit cost for 2000 by $5,000. Decreasing the assumed health care cost trend rates by 1 percent each year would decrease the accumulated post-retirement benefit obligation as of December 31, 2000, by $85,000 and decrease the net periodic post-retirement benefit cost by $6,000. 39
NOTE 11 EMPLOYEE BENEFIT PLANS (continued) Net periodic benefit cost includes the following components: <TABLE> <CAPTION> COMPONENTS OF NET PERIODIC BENEFIT COST PENSION BENEFITS OTHER BENEFITS (in thousands) 2000 1999 1998 2000 1999 1998 - - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Service cost $ 704 $ 646 $ 548 $ 98 $ 88 $ 78 Interest cost 1,258 1,134 1,040 259 227 203 Expected return on plan assets (1,487) (1,371) (1,381) 0 0 0 Amortization of prior service cost 15 14 14 0 0 0 Recognized net actuarial gain (loss) 96 70 0 0 0 (4) Amortization of transition (asset) liability (106) (77) (77) 116 116 116 Other 107 NA NA NA NA NA - - -------------------------------------------------------------------------------------------------------------------------------- NET PERIODIC BENEFIT COST $ 587 $ 416 $ 144 $ 473 $ 431 $ 393 ================================================================================================================================ </TABLE> At December 31, 2000, the Trust Company and The Bank of Castile had an Investment and Stock Ownership Plan (ISOP) and an Employee Stock Ownership Plan (ESOP), which covered substantially all employees of those organizations. The plans allowed for Company contributions in the form of cash and/or stock of the Company. Contributions are determined by the board of directors as determined by a performance-based formula, and were limited to a maximum amount as stipulated in the respective plans. In 1994, the Trust Company ISOP borrowed $1,650,000 from the Trust Company to purchase 82,500 common shares of the Company. The debt had a term of ten years and an interest rate of 9.5 percent. At December 31, 2000, the debt had been repaid and no shares remained unallocated. The Trust Company recognized compensation expense, including cash contributions, if any, for the ISOP of $0 in 2000, $392,000 in 1999, and $364,000 in 1998. In 1997, The Bank of Castile ESOP borrowed $487,000 from The Bank of Castile to purchase Company stock for the ESOP. The debt has a term of ten years and on December 31, 2000, had an outstanding balance of $334,000 and an adjustable interest rate of 10.5 percent. On December 31, 2000, 32,261 shares remained unallocated with a fair market value of $903,000. The Bank of Castile recognized compensation expense of $140,000 in 2000, $130,000 in 1999,and $132,000 in 1998. The Bank of Castile and The Mahopac National Bank each had separate 401K plans for which the Company provided certain matching contributions based upon the amount of contributions made by plan participants. The expense associated with these matching provisions was $160,000, $175,000, and $160,000 in 2000, 1999, and 1998, respectively. As of January 1, 2001, the Company adopted new 401-K and ESOP plans covering substantially all employees of the Company, and replacing the ESOP, ISOP, and 401-K plans which were previously in place at the Company's subsidiary banks. Life insurance benefits are provided to certain officers of the Company. In connection with these benefits, the Company purchased $4.4 million and $815,000 in corporate owned life insurance in 2000 and 1999, respectively, which is carried at its cash surrender value as an other asset on the consolidated statements of condition. Increases in the cash surrender value of the insurance are reflected as other operating income, and the related mortality expense is recognized as other employee benefits expense in the consolidated statements of income. In addition to the Company's non-contributory defined benefit retirement and pension plan, the Company provides supplemental employee retirement plans to certain executives. The amount of liability recognized in the Company's consolidated statements of condition for supplemental retirement plans was $1.3 million at December 31, 2000 and $915,000 at December 31, 1999. Benefits expense associated with the supplemental retirement plans amounted to $415,000, $195,000 and $61,000 for the years ended December 31, 2000, 1999, and 1998, respectively. 40
NOTE 12 STOCK BASED COMPENSATION In 1992, the Company adopted a stock option plan (the "1992 Plan") which authorized grants of options up to 254,100 shares of authorized but unissued common stock. In 1998, the Company adopted the 1998 Stock Option Plan (the "1998 Plan") which authorized grants of options up to 240,000 shares of authorized but unissued common stock, plus to the extent authorized by the board of directors, shares which are reacquired by the Company. Under the 1992 Plan and the 1998 Plan, the board of directors may grant stock options to officers, employees, and certain other individuals. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. Stock options may not have a term in excess of ten years, and have vesting periods that range between one and five years from the grant date. Outstanding options of Letchworth were converted to options of Tompkins at the time of the merger, effective December 31, 1999. At December 31, 2000, there were 20,279 shares available for grant under the 1992 and 1998 Plans. The Company applies APB Opinion No. 25 in accounting for stock based compensation, and accordingly, no compensation cost has been recognized for stock options in the accompanying consolidated financial statements. Had the Company determined compensation cost based on the fair value of its stock options at the grant date under SFAS No. 123, the Company's net income and earnings per share would have been reduced to pro forma amounts indicated in the following table: <TABLE> <CAPTION> (in thousands except per share data) 2000 1999 1998 - - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Net income: As reported $17,512 $ 15,200 14,502 Pro forma 17,356 14,958 14,387 - - ---------------------------------------------------------------------------------------------------------------------- Basic earnings per share: As reported $ 2.47 $ 2.15 2.05 Pro forma 2.44 2.12 2.03 - - ---------------------------------------------------------------------------------------------------------------------- Diluted earnings per share: As reported $ 2.45 $ 2.12 2.01 Pro forma 2.42 2.08 1.99 ====================================================================================================================== </TABLE> Pro forma compensation cost is amortized over the options' vesting period. Pro forma net income reflects only options granted after January 1, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS 123 is not reflected in the pro forma net income amounts presented above because compensation cost for options granted prior to January 1, 1995 is not considered. The per share weighted average fair value of stock options granted during 2000, 1999, and 1998 was $10.96, $8.07, and $8.52, respectively. Fair values were arrived at using the Black Scholes option-pricing model with the following assumptions: <TABLE> <CAPTION> 2000 1999 1998 - - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Risk-free interest rate 5.91% 5.85% 5.31% Expected dividend yield 3.90% 3.43% 3.10% Volatility 52.00% 47.00% 27.60% Expected life (years) 7.00 7.00 8.00 - - --------------------------------------------------------------------------------------------------------- </TABLE> 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. 41
NOTE 12 STOCK BASED COMPENSATION (continued) The following table presents the combined stock option activity for the 1992 Plan and the 1998 Plan during the periods indicated: <TABLE> <CAPTION> WEIGHTED AVERAGE NUMBER OF SHARES EXERCISE PRICE - - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> 2000: Beginning balance 251,977 $19.46 Granted 163,500 26.63 Exercised (19,546) 18.32 Forfeited (11,187) 26.79 - - --------------------------------------------------------------------------------------------------------------------------- OUTSTANDING AT YEAR-END 384,744 22.35 - - --------------------------------------------------------------------------------------------------------------------------- EXERCISABLE AT YEAR-END 196,200 $18.89 - - --------------------------------------------------------------------------------------------------------------------------- 1999: Beginning balance 300,738 $16.78 Granted 33,568 20.17 Exercised (79,589) 10.25 Forfeited (2,740) 7.29 - - --------------------------------------------------------------------------------------------------------------------------- OUTSTANDING AT YEAR-END 251,977 19.46 - - --------------------------------------------------------------------------------------------------------------------------- EXERCISABLE AT YEAR-END 158,377 $18.24 - - --------------------------------------------------------------------------------------------------------------------------- 1998: Beginning balance 349,149 $15.88 Granted 12,600 25.64 Exercised (54,445) 12.45 Forfeited (6,566) 16.84 - - --------------------------------------------------------------------------------------------------------------------------- OUTSTANDING AT YEAR-END 300,738 16.78 - - --------------------------------------------------------------------------------------------------------------------------- EXERCISABLE AT YEAR-END 154,640 $14.35 - - --------------------------------------------------------------------------------------------------------------------------- </TABLE> The following summarizes outstanding and exercisable options at December 31,2000: <TABLE> <CAPTION> OPTIONS OUTSTANDING OPTIONS EXERCISABLE - - ----------------------------------------------------------------------------------------------------------------------------- RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $11.21-15.56 50,929 3.47 $13.61 50,929 $13.61 $19.27-20.17 110,590 6.12 $19.54 97.790 $19.49 $20.91-23.66 64,225 6.28 $23.31 46,606 $23.18 $26.63-32.75 159,000 9.66 $26.72 875 $31.00 - - ----------------------------------------------------------------------------------------------------------------------------- 384,744 7.26 $22.35 196,200 $18.89 ============================================================================================================================= </TABLE> 42
NOTE 13 INCOME TAXES The income tax expense (benefit) attributable to income from operations is summarized as follows: <TABLE> <CAPTION> (in thousands) CURRENT DEFERRED TOTAL - - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> 2000: Federal $7,772 $(530) $7,242 State 1,079 (69) 1,010 - - -------------------------------------------------------------------------------------------------------------------- $8,851 $(599) $8,252 - - -------------------------------------------------------------------------------------------------------------------- 1999: Federal $7,338 $(523) $6,815 State 1,087 (53) 1,034 - - -------------------------------------------------------------------------------------------------------------------- $8,425 $(576) $7,849 - - -------------------------------------------------------------------------------------------------------------------- 1998: Federal $6,261 $(421) $5,840 State 1,492 (116) 1,376 - - -------------------------------------------------------------------------------------------------------------------- $7,753 $(537) $7,216 - - -------------------------------------------------------------------------------------------------------------------- The primary reasons for the differences between income tax expense and the amount computed by applying the statutory federal income tax rate to earnings are as follows: 2000 1999 1998 - - -------------------------------------------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 34.0% State income taxes, net of federal tax benefit 2.5 2.9 4.2 Tax exempt income (4.3) (4.8) (4.8) Non-deductible merger costs 0 1.5 0 All other (1.7) (0.5) (0.1) - - -------------------------------------------------------------------------------------------------------------------- 31.5% 34.1% 33.3% - - -------------------------------------------------------------------------------------------------------------------- Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31 were as follows: (in thousands) 2000 1999 - - --------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Reserve for loan/lease losses $3,636 $3,378 Compensation and benefits 2,319 2,015 Other 627 779 - - --------------------------------------------------------------------------------------------------------------------- TOTAL DEFERRED TAX ASSETS $6,582 $6,172 - - --------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Leasing transactions $1,595 $1,432 Prepaid pension 930 948 Depreciation 543 653 Purchase accounting adjustments 887 810 Other 275 270 - - --------------------------------------------------------------------------------------------------------------------- TOTAL DEFERRED TAX LIABILITIES $4,230 $4,113 - - --------------------------------------------------------------------------------------------------------------------- NET DEFERRED TAX ASSET AT YEAR-END $2,352 $2,059 - - --------------------------------------------------------------------------------------------------------------------- NET DEFERRED TAX ASSET AT BEGINNING OF YEAR $2,059 $1,691 - - --------------------------------------------------------------------------------------------------------------------- Increase in net deferred tax asset (293) (368) Net deferred tax asset acquired 0 723 Initial purchase accounting adjustments, net (306) (931) - - --------------------------------------------------------------------------------------------------------------------- DEFERRED TAX BENEFIT $(599) $(576) - - --------------------------------------------------------------------------------------------------------------------- </TABLE> 43
NOTE 13 INCOME TAXES (continued) This analysis does not include the recorded deferred tax assets of $6,000, and $3,359,000 related to the net unrealized depreciation in the available-for-sale securities portfolio as of December 31, 2000, and 1999, respectively. Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carry-back period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income, and the projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary at December 31, 2000 and 1999. NOTE 14 COMMITMENTS AND CONTINGENT LIABILITIES The Company leases land, buildings, and equipment under operating lease arrangements extending to the year 2090. Rental expense included in operating expenses amounted to $347,000 in 2000, $359,000 in 1999, and $343,000 in 1998. The future minimum rental commitments as of December 31, 2000, for all operating leases that cannot be canceled are as follows: (in thousands) 2001 $ 238 2002 236 2003 215 2004 218 2005 184 Thereafter $3,552 Most leases include options to renew for periods ranging from five to 20 years. Options to renew are not included in the above future minimum rental commitments. In August 2000, The Company renewed its software contract for the core banking application used by the Bank of Castile and Tompkins Trust Company. The contract expires in August 2005, with annual increases based upon asset growth of the banks serviced under the contract. Data processing services for The Mahopac National Bank our covered by a contract that expires in July 2005, with annual increases based upon increases in the Consumer Price Index and increased account volume. Required minimum annual payments under the above contracts are $371,782 in 2001. The Company, in the normal course of business, is a party to financial instruments with off-balance-sheet risk to meet the financial needs of its customers. These financial instruments include loan commitments, stand-by letters of credit, and unused portions of lines of credit. The contract, or notional amount, of these instruments represents the Company's involvement in particular classes of financial instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the consolidated statements of condition. As of December 31, 2000, the Company was committed to invest $3,850,000 in a limited partnership formed to operate a Small Business Investment Company (SBIC). As of December 31, 2000, the Company had made equity investments in the SBIC of $3,292,000, which is accounted for under the equity method of accounting, and is included in other assets on the Company's consolidated statements of condition. On December 31, 2000, and 1999, the cost of the Company's investment in the SBIC approximates fair value. The Company's maximum potential obligations to extend credit for loan commitments (unfunded loans, unused lines of credit, and stand-by letters of credit) outstanding, and its remaining commitment to invest in a Small Business Investment Company, on December 31 were as follows: <TABLE> <CAPTION> (in thousands) 2000 1999 - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Loan commitments $ 76,379 $ 69,977 Stand-by letters of credit 6,220 3,793 Undisbursed portion of lines of credit 125,073 106,869 Commitment to invest in limited partnership registered as a Small Business Investment Company 558 862 - - ---------------------------------------------------------------------------------------------------------------------------------- $208,230 $181,501 - - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> 44
NOTE 14 COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Commitments to extend credit (including lines of credit) are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Stand-by letters of credit are conditional commitments to guarantee the performance of a customer to a third party. Management uses the same credit policies in making commitments to extend credit and stand-by letters of credit as are used for on-balance-sheet lending decisions. Based upon management's evaluation of the counterparty, the Company may require collateral to support commitments to extend credit and stand-by letters of credit. The credit risk amounts are equal to the contractual amounts, assuming the amounts are fully advanced and collateral or other security is of no value. The Company does not anticipate losses as a result of these transactions. These commitments also have off-balance-sheet interest-rate risk, in that the interest rate at which these commitments were made may not be at market rates on the date the commitments are fulfilled. Since some commitments and stand-by letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, based upon the review with counsel, the proceedings are not expected to have a material effect on the consolidated financial statements. 45
NOTE 15 EARNINGS PER SHARE Calculation of basic earnings per share (Basic EPS) and diluted earnings per share (Diluted EPS) is as follows: <TABLE> <CAPTION> NET WEIGHTED FOR YEAR ENDED DECEMBER 31, 2000 INCOME AVERAGE SHARES PER SHARE (in thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT - - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Basic EPS: Income available to common shareholders $17,512 7,103,784 $2.47 Effect of dilutive securities: Stock options 55,184 Diluted EPS: Income available to common shareholders plus assumed conversions $17,512 7,158,968 $2.45 - - ---------------------------------------------------------------------------------------------------------------------------------- The effect of dilutive securities calculation for 2000 excludes 52,347 options because the exercise price was greater than the average market price for the period. NET WEIGHTED FOR YEAR ENDED DECEMBER 31, 1999 INCOME AVERAGE SHARES PER SHARE (in thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT - - ---------------------------------------------------------------------------------------------------------------------------------- Basic EPS: Income available to common shareholders $15,200 7,068,409 $2.15 Effect of dilutive securities: Stock options 109,412 Diluted EPS: Income available to common shareholders plus assumed conversions $15,200 7,177,821 $2.12 - - ---------------------------------------------------------------------------------------------------------------------------------- The effect of dilutive securities calculation for 1999 excludes 2,000 options because the exercise price was greater than the average market price for the period. - - ---------------------------------------------------------------------------------------------------------------------------------- FOR YEAR ENDED DECEMBER 31, 1998 INCOME AVERAGE SHARES PER SHARE (in thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT Basic EPS: Income available to common shareholders $14,502 7,081,213 $2.05 Effect of dilutive securities: Stock options 147,241 Stock warrants 47 Diluted EPS: Income available to common shareholders plus assumed conversions $14,502 7,228,501 $2.01 - - ---------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================== </TABLE> 46
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2000 and 1999. The carrying amounts shown in the table are included in the consolidated statements of condition under the indicated captions. <TABLE> <CAPTION> ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: 2000 1999 - - ----------------------------------------------------------------------------------------------------------------------------------- CARRYING FAIR CARRYING FAIR (in thousands) AMOUNT VALUE AMOUNT VALUE - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Financial assets: Cash and cash equivalents $ 65,364 $ 65,364 $ 54,788 $ 54,788 Securities - available-for-sale 304,358 304,358 294,199 294,199 Securities - held-to-maturity 25,863 26,147 30,975 31,265 Loans/leases, net 835,934 836,731 746,154 741,043 Accrued interest receivable 9,705 9,705 7,842 7,842 Financial liabilities: Time deposits $420,255 $420,458 $376,371 $376,307 Other deposits 614,646 614,646 597,868 597,868 Securities sold under agreements to repurchase 72,231 72,231 57,846 57,834 Other borrowings 67,257 67,576 42,012 41,845 Accrued interest payable 5,249 5,249 3,880 3,880 - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> The following methods and assumptions were used in estimating fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the consolidated statements of condition for cash, noninterest bearing deposits, and Federal funds sold approximate the fair value of those assets. SECURITIES: Fair values for securities are based on quoted market prices. When no secondary market exists to quote a market price the fair value is estimated based upon comparable securities, or, the carrying amount of the security is used as the estimated fair value. Note 3 discloses the fair values of securities. LOANS/LEASES: For variable rate loans/leases that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value of fixed rate loans/leases was estimated using discounted cash flow analyses, and interest rates currently offered for loans/leases with similar terms and credit quality. DEPOSITS: The fair values disclosed for demand deposits (e.g. interest and noninterest checking) are, by definition, equal to the amount payable on demand at the reporting date (i.e., the carrying amounts). The carrying amounts of variable-rate money market accounts and time deposits approximate their fair values at the reporting date. Fair values for fixed-rate time deposits are estimated using a discounted cash flows calculation that applies current interest rates to a schedule of aggregate expected monthly maturities. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: The carrying amounts of securities sold under agreements to repurchase with maturities of 90 days or less approximate their fair values. Fair values of repurchase agreements with maturities of more than 90 days are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rate for similar types of borrowing arrangements. OTHER BORROWINGS: The fair value of other borrowings was estimated using discounted cash flow analysis, discounted at the Company's current incremental borrowing rate for similar borrowing arrangements. OFF-BALANCE-SHEET INSTRUMENTS: The fair value of outstanding loan commitments, including unused lines of credit, and stand-by letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties' credit standing, and discounted cash flow analyses. The fair value of these instruments approximates the value of the related fees and is not significant. 47
NOTE 17 REGULATION AND SUPERVISION The Company and its subsidiary banks are subject to various regulatory capital requirements administered by Federal bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (PCA), banks must meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications of the Company and its subsidiary banks are also subject to qualitative judgments by regulators concerning components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes that the Company and its subsidiary banks meet all capital adequacy requirements to which they are subject. As of December 31, 2000, the most recent notifications from federal bank regulatory agencies categorized the Trust Company, The Bank of Castile, and The Mahopac National Bank as well capitalized under the regulatory framework for PCA. To be categorized as well capitalized, the Company and its subsidiary banks must maintain total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the capital category of the Company or its subsidiary banks. Actual capital amounts and ratios of the Company and its subsidiary banks are as follows: <TABLE> <CAPTION> REQUIRED REQUIRED TO BE TO BE ACTUAL ADEQUATELY CAPITALIZED WELL CAPITALIZED - - ----------------------------------------------------------------------------------------------------------------------------------- (dollar amounts in thousands) AMOUNT/RATIO AMOUNT/RATIO AMOUNT/RATIO - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> DECEMBER 31, 2000: Total Capital (to risk-weighted assets) The Company (consolidated) $116,746/13.0% >$72,048/>8.0% >$90,060/>10.0% Trust Company $66,387/14.5% >$36,715/>8.0% >$45,893/>10.0% Castile $26,661/10.7% >$19,972/>8.0% >$24,965/>10.0% Mahopac $18,864/13.3% >$11,312/>8.0% >$14,141/>10.0% Tier I Capital (to risk-weighted assets) The Company (consolidated) $106,922/11.9% >$36,024/>4.0% >$54,036/>6.0% Trust Company $61,208/13.3% >$18,357/>4.0% >$27,536/>6.0% Castile $23,642/9.5% >$9,986/>4.0% >$14,979/>6.0% Mahopac $17,238/12.2% >$5,656/>4.0% >$8,484/>6.0% Tier I Capital (to average assets) The Company (consolidated) $106,922/8.5% >$50,489/>4.0% >$63,111/>5.0% Trust Company $61,208/8.4% >$29,178/>4.0% >$36,472/>5.0% Castile $23,642/7.2% >$13,129/>4.0% >$16,411/>5.0% Mahopac $17,238/8.5% >$8,093/>4.0% >$10,116/>5.0% =================================================================================================================================== DECEMBER 31, 1999: Total Capital (to risk-weighted assets) The Company (consolidated) $109,105/14.5% >$60,026/>8.0% >$75,032/>10.0% Trust Company $70,264/16.0% >$35,080/>8.0% >$43,850/>10.0% Castile $21,628/10.1% >$17,079/>8.0% >$21,349/>10.0% Mahopac $17,907/16.7% >$8,572/>8.0% >$10,716/>10.0% Tier I Capital (to risk-weighted assets) The Company (consolidated) $99,877/13.3% >$30,013/>4.0% >$45,019/>6.0% Trust Company $65,135/14.9% >$17,540/>4.0% >$26,310/>6.0% Castile $19,077/ 8.9% >$8,540/>4.0% >$12,809/>6.0% Mahopac $16,580/15.5% >$4,286/>4.0% >$6,429/>6.0% Tier I Capital (to average assets) The Company (consolidated) $99,877/9.3% >$42,913/>4.0% >$53,641/>5.0% Trust Company $65,135/9.2% >$28,431/>4.0% >$35,539/>5.0% Castile $19,077/6.6% >$11,504/>4.0% >$14,381/>5.0% Mahopac $16,580/9.9% >$6,696/>4.0% >$8,370/>5.0% - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> Generally, dividends from the banking subsidiaries to the Company are limited to retained net profits for the current year and two preceding years, unless specific approval is received from the appropriate bank regulatory authority. At December 31, 2000, the retained net profits of the Company's bank subsidiaries available to pay dividends were $11,492,000. Each bank subsidiary is required to maintain reserve balances by the Federal Reserve Bank of New York. At December 31, 2000, and 1999, the reserve requirements for the Company's banking subsidiaries totaled $10,406,000 and $12,252,000, respectively. 48
NOTE 18 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS Condensed financial statements for Tompkins Trustco, Inc. (the Parent Company) as of December 31 are presented below. <TABLE> <CAPTION> CONDENSED STATEMENTS OF CONDITION - - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Cash $ 3,846 $ 769 Available-for-sale securities, at fair value 1,488 2,559 Investment in subsidiaries, at equity 108,545 90,251 Other 2,054 5,786 - - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $115,933 $99,365 - - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities $ 938 $ 2,741 Shareholders' equity 114,995 96,624 - - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $115,933 $99,365 - - ----------------------------------------------------------------------------------------------------------------------------------- CONDENSED STATEMENTS OF INCOME - - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 1998 - - --------------------------------------------------------------------------------------------------------------------------------- Dividends from available-for-sale investments $ 169 $ 110 $ 97 Dividends received from banking subsidiaries 16,098 24,365 6,369 Securities gains 299 0 0 Other income 87 72 24 - - --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING INCOME 16,653 24,547 6,490 - - --------------------------------------------------------------------------------------------------------------------------------- Amortization of intangible assets 451 370 0 Other expenses 683 2,198 728 - - --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 1,133 2,568 728 - - --------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES 15,520 21,979 5,762 - - --------------------------------------------------------------------------------------------------------------------------------- Income tax benefit (375) (414) (121) Equity in undistributed net income of subsidiaries 1,618 (7,193) 8,619 - - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $17,512 $15,200 $14,502 - - --------------------------------------------------------------------------------------------------------------------------------- </TABLE> 49
NOTE 18 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (continued) <TABLE> <CAPTION> CONDENSED STATEMENTS OF CASH FLOWS - - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 1998 - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> OPERATING ACTIVITIES Net Income $ 17,512 $ 15,200 $ 14,502 Adjustments to reconcile net income to cash provided by operating activities: Equity in undistributed income of subsidiaries (1,618) 7,193 (8,619) Amortization of intangible assets 451 370 0 Realized gains on available-for-sale securities (299) 0 0 Issuance of treasury shares 75 41 40 ESOP compensation expenses 159 130 132 Other, net (649) (334) (846) - - ----------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 15,631 22,600 5,209 - - ----------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of available-for-sale securities 0 (191) (123) Proceeds from sale of available-for-sale securities 1,047 0 0 Purchase of The Mahopac National Bank 0 (14,624) 0 - - ----------------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES 1,047 (14,815) (123) - - ----------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Cash dividends (7,696) (6,159) (5,499) Repurchase of common shares (4,870) (4,101) (2,138) Cash paid in lieu of fractional common shares (9) 0 0 Net proceeds from exercise of stock options, warrants, and related tax benefit 288 691 281 Advances from subsidiaries 0 1,265 0 Repayment of advances from subsidiaries (1,314) (275) (49) - - ----------------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (13,601) (8,579) (7,405) - - ----------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH 3,077 (794) (2,319) - - ----------------------------------------------------------------------------------------------------------------------------------- CASH AT BEGINNING OF YEAR 769 1,563 3,882 - - ----------------------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 3,846 $ 769 $ 1,563 - - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> 50
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REPORT OF KPMG LLP, INDEPENDENT AUDITORS BOARD OF DIRECTORS AND SHAREHOLDERS, TOMPKINS TRUSTCO, INC. We have audited the accompanying consolidated statements of condition of Tompkins Trustco, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of Letchworth Independent Bancshares Corporation and Tompkins Trustco, Inc., which has been accounted for as a pooling-of-interests, as described in Note 2 to the consolidated financial statements. We did not audit the consolidated statements of income, changes in shareholders' equity, and cash flows of Letchworth Independent Bancshares Corporation for the year ended December 31, 1998, which statements reflect net interest income of $12.1 million. Those statements were audited by other auditors whose unqualified report dated January 22, 1999 has been furnished to us, and our opinion, insofar as it relates to the amounts included for Letchworth Independent Bancshares Corporation for 1998, is based solely on the report of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tompkins Trustco, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP - - --------------------- JANUARY 22, 2001 SYRACUSE, NEW YORK 52
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MANAGEMENT'S STATEMENT OF RESPONSIBILITY Management is responsible for preparation of the consolidated financial statements and related financial information contained in all sections of this annual report, including the determination of amounts that must necessarily be based on judgments and estimates. It is the belief of management that the consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances, and that the financial information appearing throughout this annual report is consistent with the consolidated financial statements. Management establishes and monitors the Company's system of internal accounting controls to meet its responsibility for reliable financial statements. The system is designed to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and are properly recorded. The Audit/Examining Committee of the board of directors, composed solely of outside directors, meets periodically and privately with management, internal auditors, and independent auditors, KPMG LLP, to review matters relating to the quality of financial reporting, internal accounting control, and the nature, extent, and results of audit efforts. The independent and internal auditors have unlimited access to the Audit/Examining Committee to discuss all such matters. The consolidated financial statements have been audited by the Company's independent auditors for the purpose of expressing an opinion on the consolidated financial statements. /s/ JAMES J. BYRNES /s/ FRANCIS M. FETSKO ------------------------------- ------------------------------- James J. Byrnes Francis M. Fetsko Chief Executive Officer Chief Financial Officer 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS Information relating to the Directors of the Company is incorporated herein by reference from the "Election of Directors" section of the Proxy Statement beginning on page 4 thereof. <TABLE> <CAPTION> EXECUTIVE OFFICERS AGE TITLE JOINED COMPANY <S> <C> <C> <C> James J. Byrnes 59 Chairman of the Board, and Chief Executive Officer January 1989 James W. Fulmer 49 President, Director January 2000 Brenda L. Copeland 49 Executive Vice President January 2000 Stephen E. Garner 54 Executive Vice President January 2000 Donald S. Stewart 56 Executive Vice President December 1972 Francis M. Fetsko 36 Senior Vice President and Chief Financial Officer October 1996 Joyce P. Maglione 58 Senior Vice President March 1981 Thomas J. Smith 60 Senior Vice President December 1964 Lawrence A. Updike 55 Senior Vice President December 1965 </TABLE> BUSINESS EXPERIENCE OF THE EXECUTIVE OFFICERS: James J. Byrnes has been chairman of the board of the Company since April 1992, and chief executive officer of the Company since January 1989. From 1978 to 1988, Mr. Byrnes was employed at the Bank of Montreal, most recently as senior vice president. James W. Fulmer was appointed president of the Company in January 2000. Mr. Fulmer is the former president and chief executive officer of Letchworth Independent Bancshares Corporation, where he served as president and chief executive officer since January 1991. Effective December 31, 1999, Letchworth was merged with and into Tompkins Trustco, Inc. Brenda L. Copeland was appointed executive vice president of the Company in May 2000. Ms. Copeland is the president and chief executive officer of The Bank of Castile, where she served as president since January 1991 and chief executive officer since April 1999. Stephen E. Garner was appointed executive vice president of the Company in May 2000. Mr. Garner is the president and chief executive officer of The Mahopac National Bank, where he served as in that capacity since January 1994. Francis M. Fetsko has been employed by the Company since 1996, and has served as senior vice president and chief financial officer since December 2000. Joyce P. Maglione has been employed by the Company since March 1981, and has served as senior vice president since December 1999. Thomas J. Smith has been employed by the Company since 1964, and has served as senior vice president in charge of credit services since December 1984. Donald S. Stewart has been employed by the Company since 1972, served as senior vice president in charge of trust and investment services since December 1984, and was promoted to executive vice president in 1997. Lawrence A. Updike has been employed by the Company since 1965, and has served as senior vice president in charge of operations and systems since December 1988. 55
ITEM 11. EXECUTIVE COMPENSATION "Executive Compensation" beginning on page 7 of the Proxy Statement is incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT "Security Ownership of Certain Beneficial Owners and Management" beginning on page 2 of the Proxy Statement is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS "Certain Relationships and Related Transactions" contained on page 13 of the Proxy Statement is incorporated by reference herein. 56
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) THE FOLLOWING FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K: Report of Independent Accountants Consolidated Statement of Condition for the years ended December 31, 2000, and 1999 Consolidated Statement of Income for the years ended December 31, 2000, 1999, and 1998 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999, and 1998 Consolidated Statement of Cash Flows for the years ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements (a)(2) LIST OF FINANCIAL SCHEDULES Not Applicable. (a)(3) EXHIBITS Item No. Description 2. Agreement and Plan of Reorganization, dated as of March 14, 1995, among the Bank, the Company and the Interim Bank incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 3.1 Certificate of Incorporation of the Company incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 3.2 Bylaws of the Company incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 4. Form of Specimen Common Stock Certificate of the Company incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 10.2 1992 Stock Option Plan incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 10.3 1996 Stock Retainer Plan for Non-Employee Directors incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 10.4 Form of Director Deferred Compensation Agreement incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 10.5 Deferred Compensation Plan for Senior Officers incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 57
10.6 Supplemental Executive Retirement Agreement with James J. Byrnes incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 10.7 Severance Agreement with James J. Byrnes incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Registration Statement on Form 8-A (No. 0-27514), as filed with the Commission on December 29, 1995, and amended. 10.8 Lease Agreement dated August 20, 1993, between Tompkins County Trust Company and Comex Plaza Associates, relating to leased property at the Rothschilds Building, Ithaca, NY, incorporated herein by reference to the identically numbered exhibit contained in the Registrant's Form 10-K, as filed with the Commission on March 26, 1996, and amended. 10.9 Employment Agreement, dated September 12, 1989, by and between Letchworth and James W. Fulmer, incorporated by reference to Letchworth's Amendment No. 1 to Form S-18 Registration Statement (Reg. No. 33-31149-NY), filed with the Commission on October 31, 1989, and wherein such Exhibit is designated Exhibit 10(a). 10.10 Employment Agreement, dated as of January 1,1991, by and between Letchworth and Brenda L. Copeland, incorporated by reference to Letchworth's Annual Report on Form 10-K for the year ended December 31, 1991, filed with the Commission on March 30, 1992, and wherein such Exhibit is designated Exhibit 10(b). 10.11 Employee Stock Ownership Plan of Letchworth, incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(c). 10.12 Defined Benefit Pension Plan of Letchworth, incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(d). 10.13 Form of Executive Supplemental Income Agreement, as amended, incorporated by reference to Letchworth's Annual Report on Form 10-K for the year ended December 31, 1991 and filed with the Commission on March 30, 1992, and where in such Exhibit is designated Exhibit 19. 10.14 Form of Director Deferred Compensation Agreement, incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(f). 10.15 Loan and Pledge Agreement, dated June 16, 1986, by and between Employee Stock Ownership Trust of Letchworth and Salamanca Trust Company, incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(g). 10.16 Loan and Pledge Agreement, dated June 16, 1986, by and between Employee Stock Ownership Trust of Letchworth and Community National Bank, incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(h). 10.17 Lease Agreement, dated March 1, 1982, by and between Letchworth and Herald Ford, Inc., incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(i). 10.18 Lease Agreement, dated April 12, 1982, and an Addendum thereto, dated January 25, 1973, by and between Letchworth and 15 South Center Street, Inc., incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(j). 10.19 Lease Agreement, dated August 1, 1974, by and between The Citizen Bank, Attica and Fred Glickstein, which Lease Agreement was assumed by Letchworth on December 7, 1984, incorporated by reference to Letchworth's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on September 2, 1989, and wherein such Exhibit is designated Exhibit 10(k). 58
10.20 Salary Savings Plan (401(k) Plan) of Letchworth, incorporated by reference to Letchworth's Amendment No. 1 to Form S-18 Registration Statement (Reg. No. 33-31149-NY), filed with the Commission on October 31, 1989, and wherein such Exhibit is designated Exhibit 10(l). 10.21 Loan Agreement, dated November 6, 1990, by and between Letchworth and Alden State Bank, incorporated by reference to Letchworth's Annual Report on Form 10-K for the year-ended December 31, 1990, and filed with the Commission on April 1, 1991, and wherein such Exhibit is designated Exhibit 10(m). 10.22 Sales Contract, dated September 10, 1991, by and between John Piraino, Jr. ("Piraino") and the Bank, incorporated by reference to Letchworth's Annual Report on Form 10-K for the year ended December 31, 1992, and filed with the Commission on March 30, 1993, and wherein such Exhibit is designated Exhibit 10(n). 10.23 Indenture of Lease, dated September 10, 1991, by and between Piraino and the Bank, incorporated by reference to Letchworth's Annual Report on Form 10-K for the year ended December 31, 1992, and filed with the Commission on March 30, 1993, and wherein such Exhibit is designated Exhibit 10(o). 10.24 Purchase and Assumption Agreement, dated as of January 10, 1991, by and between Letchworth, The Bank of Castile, and Anchor Savings Bank FSB, incorporated by reference to the Letchworth's Report on Form 8-K/A amending the Letchworth's Current Report on Form 8-K dated January 31, 1992, and which Form 8-K/A was filed with the Commission on April 3, 1992, and wherein such Exhibit is designated Exhibit 10(a). 10.25 Sales Contract, dated as of January 10, 1991, by and between The Bank of Castile and Anchor Savings Bank FSB, incorporated by reference to Letchworth's Report on Form 8-K/A amending the Letchworth's Current Report on Form 8-K dated January 31, 1992, and which Form 8-K/A was filed with the Commission on April 3, 1992, and wherein such Exhibit is designated Exhibit 10(b). 10.26 Purchase and Assumption Agreement, dated as of May 11, 1994, by and between The Bank of Castile and The Chase Manhattan Bank (National Association), incorporated by reference to Letchworth's Report on Form 8-K, dated December 12, 1994, and which Form 8-K was filed with the Commission on December 19, 1994, and wherein such Exhibit is designated Exhibit 2.1. 10.27 Sales Contract, dated as of May 11, 1994, by and between The Bank of Castile and The Chase Manhattan Bank (National Association), incorporated by reference to Letchworth's Report on Form 8-K, dated December 12, 1994, and which Form 8-K was filed with the Commission on December 19, 1994, and wherein such Exhibit is designated Exhibit 2.2. 10.28 Agreement and Plan of Reorganization, dated as of July 30, 1999 between Tompkins Trustco, Inc. and Letchworth Independent Bancshares Corporation, incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No. 333-90411), in which such exhibit is included as Annex A. 10.29 Stock Purchase Agreement, dated October 31, 1998, between Letchworth and certain shareholders of The Mahopac National Bank, together with a letter agreement extending the closing date for said transaction until the close of business on June 4, 1999. The exhibit is incorporated by reference to Letchworth's report on Form 8-K dated June 17, 1999, as amended, wherein said exhibit is referenced as Exhibit 2(a). 10.30 Shareholder agreement dated October 16, 1998, by and among Letchworth and W. D. Spain & Sons Limited Partnership, William D. Spain, Jr., C. Compton Spain, Michael H. Spain, and William D. Spain. 11 Statement of Computation of Earnings Per Share Required information is incorporated by reference to Note 15 of the Company's consolidated financial statements included under Item 8. 59
21 Subsidiaries of Registrant: Tompkins Trust Company, which is wholly-owned by the Company, and its subsidiary Tompkins Real Estate Holdings, Inc., which is approximately 99 percent owned by Tompkins County Trust Company. The Bank of Castile, which is wholly-owned by the Company, and its subsidiary Castile Funding Corporation, Inc., which is approximately 99 percent owned by The Bank of Castile. The Mahopac National Bank, which is wholly-owned by the Company, and its subsidiary Mahopac Funding Corporation, Inc., which is approximately 99 percent owned by The Mahopac National Bank. 23 Consent of KPMG LLP 23.1 Consent of PricewaterhouseCoopers LLP 99.1 Independent Auditors' Report from PricewaterhouseCoopers LLP (as auditors for Letchworth Independent Bancshares Corporation). (b) REPORTS ON FORM 8-K The Company filed no Current Reports on Form 8-K during the quarter ended December 31, 2000. 60
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOMPKINS TRUSTCO, INC. By: /s/ JAMES J. BYRNES ------------------------------ James J. Byrnes Chairman of the Board and Chief Executive Officer Date: March 27, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated: SIGNATURE CAPACITY /s/ JAMES J. BYRNES Chairman of the Board and - - --------------------------- Chief Executive Officer James J. Byrnes /s/ JAMES W. FULMER President, Director - - --------------------------- James W. Fulmer /s/ FRANCIS M. FETSKO Senior Vice President and - - --------------------------- Chief Financial Officer Francis M. Fetsko /s/ JOHN ALEXANDER Director - - --------------------------- John E. Alexander /s/ REEDER D. GATES Director - - --------------------------- Reeder D. Gates /s/ WILLIAM W. GRISWOLD Director - - --------------------------- William W. Griswold /s/ JAMES R. HARDIE Director - - --------------------------- / JAMES R. HARDIE /s/ EDWARD C. HOOKS Director - - --------------------------- Edward C. Hooks /s/ BONNIE H. HOWELL Vice Chairman - - --------------------------- Director Bonnie H. Howell /s/ HUNTER R. RAWLINGS, III Director - - --------------------------- Hunter R. Rawlings, III /s/ THOMAS R. SALM Director - - --------------------------- Thomas R. Salm /s/ MICHAEL SPAIN Director - - --------------------------- Michael Spain /s/ WILLIAM D. SPAIN Director - - --------------------------- William D. Spain /s/ CRAIG YUNKER Director - - --------------------------- Craig Yunker 61
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TOMPKINS TRUSTCO INC. P.O. Box 460, Ithaca, New York 14851 (607) 273-3210 www.tompkinstrustco.com 63