UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12709
[GRAPHIC OMITTED]
TOMPKINS TRUSTCO INC.
(Exact name of registrant as specified in its charter)
New York 16-1482357
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
The Commons, P.O. Box 460, Ithaca, NY 14851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 273-3210
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes[ ] No[X]
Indicate the number of shares of the Registrant's Common Stock outstanding as of
the latest practicable date:
Class Outstanding as of October 31, 2005
---------------------------- ----------------------------------
Common Stock, $.10 par value 8,964,075 shares
TOMPKINS TRUSTCO, INC.
FORM 10-Q
INDEX
PART I -FINANCIAL INFORMATION
PAGE
----
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Statements of Condition as of 3
September 30, 2005 and December 31, 2004
Condensed Consolidated Statements of Income for
the three months and nine months ended September 30, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2005 and 2004 5
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the nine months ended September 30, 2005 and 2004 6
Notes to Unaudited Condensed Consolidated Financial Statements 7-12
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-21
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 21-22
Item 4 - Controls and Procedures 22
Average Consolidated Balance Sheet and Net Interest Analysis 23
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 24
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3 - Defaults Upon Senior Securities 24
Item 4 - Submission of Matters to a Vote of Securities Holders 24
Item 5 - Other Information 24
Item 6 - Exhibits 25
SIGNATURES 26
EXHIBIT INDEX 27
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data) (Unaudited)
As of As of
ASSETS 09/30/2005 12/31/2004
----------- -----------
Cash and noninterest bearing balances due from banks $ 67,611 $ 39,911
Interest bearing balances due from banks 1,216 1,021
Available-for-sale securities, at fair value 584,388 591,071
Held-to-maturity securities, fair value of $80,687 at September 30, 2005,
and $70,526 at December 31, 2004 79,770 69,252
Loans and leases, net of unearned income and deferred costs and fees 1,247,890 1,172,148
Less: Reserve for loan/lease losses 13,384 12,549
------------------------------------------------------------------------------------------------------------------
Net Loans/Leases 1,234,506 1,159,599
Bank premises and equipment, net 34,876 33,118
Corporate owned life insurance 26,806 23,940
Goodwill 12,286 12,280
Other intangible assets 2,298 2,782
Accrued interest and other assets 36,986 37,321
------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,080,743 $ 1,970,295
==================================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $ 731,921 $ 784,850
Time 558,713 455,942
Noninterest bearing 331,328 320,081
------------------------------------------------------------------------------------------------------------------
Total Deposits 1,621,962 1,560,873
Federal funds purchased and securities sold under agreements to repurchase 168,837 153,715
Other borrowings 79,849 63,303
Other liabilities 28,853 19,937
------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 1,899,501 $ 1,797,828
------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 1,490 1,465
Shareholders' equity:
Common Stock - par value $.10 per share: Authorized 15,000,000 shares;
Issued: 8,993,754 at September 30, 2005; and 8,980,049 at December 31, 2004 899 816
Surplus 118,348 75,837
Undivided profits 64,704 94,522
Accumulated other comprehensive (loss) income (2,997) 871
Treasury stock, at cost - 52,058 shares at September 30, 2005,
and 48,719 shares at December 31, 2004 (1,202) (1,044)
------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 179,752 $ 171,002
------------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest in Consolidated Subsidiaries
and Shareholders' Equity $ 2,080,743 $ 1,970,295
==================================================================================================================
Share data has been retroactively adjusted to reflect a 10% stock dividend paid
on February 15, 2005. See accompanying notes to unaudited condensed consolidated
financial statement
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)
Three months ended Nine months ended
09/30/2005 09/30/2004 09/30/2005 09/30/2004
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $ 20,901 $ 17,360 $ 59,309 $ 50,790
Balances due from banks 4 12 53 88
Federal funds sold 0 1 13 18
Available-for-sale securities 5,803 6,015 17,420 17,935
Held-to-maturity securities 648 488 1,787 1,378
-------------------------------------------------------------------------------------------------------------------
Total Interest and Dividend Income 27,356 23,876 78,582 70,209
-------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 1,724 785 4,415 2,061
Other deposits 4,398 3,012 11,876 9,025
Federal funds purchased and securities sold under agreements
to repurchase 1,320 1,080 3,588 3,262
Other borrowings 825 946 2,389 2,843
-------------------------------------------------------------------------------------------------------------------
Total Interest Expense 8,267 5,823 22,268 17,191
-------------------------------------------------------------------------------------------------------------------
Net Interest Income 19,089 18,053 56,314 53,018
-------------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 662 749 1,831 2,274
-------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan/Lease Losses 18,427 17,304 54,483 50,744
-------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and investment services income 1,242 1,274 3,911 3,938
Service charges on deposit accounts 2,234 2,074 6,138 5,869
Insurance commissions and fees 2,017 1,693 5,806 4,883
Card services income 663 646 1,931 1,835
Other service charges 793 813 2,248 2,457
Increase in cash surrender value of corporate owned life 270 225 786 807
insurance
Gains on sale of loans 47 66 168 185
Other income 441 513 1,111 939
Net realized gain (loss) on available-for-sale securities 0 (8) 19 70
-------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 7,707 7,296 22,118 20,983
-------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salary and wages 7,183 6,702 21,114 19,966
Pension and other employee benefits 1,873 1,692 5,741 5,345
Net occupancy expense of bank premises 984 881 3,042 2,756
Furniture and fixture expense 894 859 2,694 2,557
Marketing expense 549 503 1,686 1,473
Professional fees 531 539 1,202 1,115
Software licenses and maintenance 433 308 1,339 1,010
Cardholder expense 357 341 1,021 976
Amortization of intangible assets 140 154 455 502
Other operating expense 2,661 2,408 7,867 7,536
-------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 15,605 14,387 46,161 43,236
-------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense and Minority
Interest in Consolidated Subsidiaries 10,529 10,213 30,440 28,491
-------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 33 34 98 101
Income Tax Expense 3,386 3,395 9,871 9,355
===================================================================================================================
Net Income $ 7,110 $ 6,784 $ 20,471 $ 19,035
===================================================================================================================
Basic Earnings Per Share $ 0.79 $ 0.76 $ 2.29 $ 2.12
===================================================================================================================
Diluted Earnings Per Share $ 0.78 $ 0.75 $ 2.25 $ 2.09
===================================================================================================================
Per share data has been retroactively adjusted to reflect a 10% stock dividend
paid on February 15, 2005. See accompanying notes to unaudited condensed
consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Nine months ended
09/30/2005 09/30/2004
---------- ----------
OPERATING ACTIVITIES
Net income $ 20,471 $ 19,035
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 1,831 2,274
Depreciation and amortization premises, equipment, and software 2,831 2,664
Amortization of intangible assets 455 502
Earnings from corporate owned life insurance (786) (807)
Net amortization on securities 1,387 1,702
Net realized gain on available-for-sale securities (19) (70)
Net gain on sale of loans (168) (185)
Proceeds from sale of loans 11,796 10,741
Loans originated for sale (11,620) (10,563)
Tax benefit from stock option exercise 193 62
Net gain on sales of bank premises and equipment (215) (19)
(Increase) decrease in accrued interest receivable (1,190) 166
Increase in accrued interest payable 581 2
Other, net 12,067 6,819
---------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 37,614 32,323
---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 70,440 186,430
Proceeds from sales of available-for-sale securities 24,318 46,132
Proceeds from maturities of held-to-maturity securities 22,262 12,801
Purchases of available-for-sale securities (95,797) (256,868)
Purchases of held-to-maturity securities (32,873) (29,499)
Net increase in loans (76,746) (78,159)
Proceeds from sale of bank premises and equipment 362 55
Purchases of bank premises and equipment (4,316) (5,191)
Purchase of corporate owned life insurance (2,080) (25)
---------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (94,430) (124,324)
---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in demand, money market,
and savings deposits (41,682) 76,903
Net increase in time deposits 102,771 50,805
Net increase (decrease) in securities sold under agreements
to repurchase and Federal funds purchased 15,122 (24,177)
Increase in other borrowings 67,000 16,623
Repayment of other borrowings (50,454) (26,247)
Cash dividends (7,814) (7,333)
Cash paid in lieu of fractional shares - 10% stock dividend (13) 0
Common stock repurchased and returned to unissued status (897) (2,976)
0 0
Net proceeds from exercise of stock options 678 596
---------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 84,711 84,194
---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 27,895 (7,807)
Cash and cash equivalents at beginning of period 40,932 65,756
=========================================================================================================
Total Cash & Cash Equivalents at End of Period $ 68,827 $ 57,949
=========================================================================================================
Supplemental Information:
Cash paid during the year for:
Interest $ 21,687 $ 17,190
Taxes 4,317 4,708
See accompanying notes to unaudited condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data) (Unaudited)
Accumulated
Other
Common Undivided Comprehensive Treasury
Stock Surplus Profits Income (Loss) Stock Total
-----------------------------------------------------------------------------------------------------------------------------------
January 1, 2004 $ 819 $ 76,926 $ 78,676 $ 3,015 ($ 466) $ 158,970
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 19,035 19,035
Other comprehensive loss (140) (140)
-----------
Total Comprehensive Income 18,895
===========
Cash dividends ($0.82/Share) (7,333) (7,333)
Exercise of stock options, and related
tax benefit (27,821 shares, net) 2 656 658
Common stock repurchased and returned
To unissued status (72,541 shares) (7) (2,969) (2,976)
Directors deferred compensation plan
(17,851 shares) 526 (526) 0
-----------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2004 $ 814 $ 75,139 $ 90,378 $ 2,875 ($ 992) $ 168,214
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
January 1, 2005 $ 816 $ 75,837 $ 94,522 $ 871 ($ 1,044) $ 171,002
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 20,471 20,471
Other comprehensive loss (3,868) (3,868)
-----------
Total Comprehensive Income 16,603
===========
Cash dividends ($0.87/Share) (7,814) (7,814)
Exercise of stock options and related
tax benefit (35,969 shares, net) 3 868 871
Common stock repurchased and returned
to unissued status (21,984 shares) (2) (895) (897)
Effect of 10% stock dividend 82 42,380 (42,462) 0
Directors deferred compensation plan
(3,339 shares) 158 (158) 0
Cash paid in lieu of fractional shares
(279 shares) (13) (13)
-----------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2005 $ 899 $ 118,348 $ 64,704 ($ 2,997) ($ 1,202) $ 179,752
===================================================================================================================================
Share and per share data have been retroactively adjusted to reflect a 10% stock
dividend paid on February 15, 2005.
See accompanying notes to unaudited condensed consolidated financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Tompkins Trustco, Inc. ("Tompkins" or the "Company"), is the corporate parent to
three community bank subsidiaries, Tompkins Trust Company ("Trust Company"), The
Bank of Castile and The Mahopac National Bank, which together operate 35 banking
offices in New York State, and to one insurance agency subsidiary, Tompkins
Insurance Agencies, Inc. ("Tompkins Insurance"). Unless the context otherwise
requires, the term "Company" refers collectively to Tompkins Trustco, Inc. and
its subsidiaries.
Headquartered in Ithaca, New York, Tompkins is registered as a Financial Holding
Company with the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. Tompkins was organized in 1995, under the laws of the State of
New York, as a bank holding company for the Trust Company, a commercial bank
that has operated in Ithaca and surrounding communities since 1836. Through its
community banking subsidiaries, the Company provides traditional banking and
related financial services. Tompkins offers trust and investment services
through Tompkins Investment Services, a division of the Trust Company. The
Company also offers insurance services through Tompkins Insurance, an
independent insurance agency with a history of over 100 years of service to
individual and business clients throughout Western New York. At year-end 2004,
Tompkins Insurance expanded its geographic presence through its acquisition of
Banfield & Associates, Inc., an insurance agency in Ithaca, New York. Each
Tompkins subsidiary operates with a community focus, meeting the needs of the
unique communities served.
2. Basis of Presentation
The unaudited condensed consolidated financial statements included in this
quarterly report have been prepared in accordance with accounting principles
generally accepted in the United States of America. In the application of
certain accounting policies management is required to make assumptions regarding
the effect of matters that are inherently uncertain. These estimates and
assumptions affect the reported amounts of certain assets, liabilities,
revenues, and expenses in the unaudited condensed consolidated financial
statements. Different amounts could be reported under different conditions, or
if different assumptions were used in the application of these accounting
policies. The accounting policy management considers critical in this respect is
the determination of the reserve for loan/lease losses.
In management's opinion, the unaudited condensed consolidated financial
statements reflect all adjustments of a normal recurring nature. The results of
operations for the interim periods are not necessarily indicative of the results
of operations to be expected for the full fiscal year ending December 31, 2005.
The unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2004. The consolidated financial information included herein
combines the results of operations, the assets, liabilities, and shareholders'
equity of the Company and its subsidiaries. Amounts in the prior period's
consolidated financial statements are reclassified when necessary to conform to
the current period's presentation. All significant intercompany balances and
transactions are eliminated in consolidation. Share and per share data have been
retroactively adjusted to reflect a 10% stock dividend paid on February 15,
2005.
The Company applies Accounting Principles Board Opinion (APB Opinion) No. 25,
"Accounting for Stock Issued to Employees," 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. Since the Company grants options with
the exercise price equal to the fair value of the underlying stock at the grant
date, there is no compensation expense recorded in net income. Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," requires companies not using a fair value based method of
accounting for stock options to provide pro forma disclosure of net income and
earnings per share as if the fair value method of accounting had been applied.
Had the Company determined compensation cost based on the fair value of its
stock options at the grant date under SFAS No. 123, the Company's net income and
earnings per share would have been reduced to pro forma amounts indicated in the
following table.
7
Three months ended Nine months ended
(in thousands except per share data) 09/30/2005 09/30/2004 09/30/2005 09/30/2004
----------------------------------------------------------------------------------------------------------------
Net Income:
As reported $ 7,110 $ 6,784 $ 20,471 $ 19,035
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of all related tax effects 211 217 651 528
----------------------------------------------------------------------------------------------------------------
Pro forma $ 6,899 $ 6,567 $ 19,820 $ 18,507
----------------------------------------------------------------------------------------------------------------
Basic earnings per share:
As reported $ 0.79 $ 0.76 $ 2.29 $ 2.12
----------------------------------------------------------------------------------------------------------------
Pro forma 0.77 0.74 2.21 2.06
----------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
As reported $ 0.78 $ 0.75 $ 2.25 $ 2.09
================================================================================================================
Pro forma 0.76 0.73 2.18 2.04
================================================================================================================
No stock options were granted in the first nine months of 2005. The per share
weighted average fair value of the 199,000 stock options granted during the
first nine months of 2004 was $15.00. Fair values were arrived at using the
Black Scholes option-pricing model with the following assumptions:
2004
--------------------------------------------------------------------------------
Risk-free interest rate 3.82%
Expected dividend yield 2.70%
Volatility 39.76%
Expected life (years) 5.00
================================================================================
In December 2004, The FASB issued SFAS No. 123R, "Share-Based Payment." This
Statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees" and its related implementation
guidance. SFAS No. 123R eliminates the ability to account for stock-based
compensation using APB No. 25 and requires a public entity to measure the cost
of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. The cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award. The grant-date fair value of employee stock options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of those instruments (unless observable market prices
for the same or similar instruments are available). For equity awards that are
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over
the fair value of the original award immediately before the modification. In the
future, the notes to consolidated financial statements will include information
to assist users of financial information to understand the nature of share-based
payment transactions and the effects of those transactions on the financial
statements. On April 14, 2005, the Securities and Exchange Commission amended
the date for compliance with SFAS No. 123R to the first interim or annual
reporting period of the first fiscal year beginning on or after June 15, 2005.
SFAS No. 123R is therefore effective for the Company beginning January 1, 2006.
The Company's method of adoption has not yet been determined.
8
3. Earnings Per Share
The Company follows the provisions of SFAS No. 128, "Earnings per Share"
("EPS"). A computation of Basic EPS and Diluted EPS for the three-month and
nine-month periods ending September 30, 2005 and 2004 is presented in the table
below.
-------------------------------------------------------------------------------------------------------------------
Three months ended September 30, 2005 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
-------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 7,110 8,956,846 $ 0.79
Effect of dilutive securities (Stock options) 134,809
Diluted EPS
===================================================================================================================
Income available to common shareholders plus assumed conversions $ 7,110 9,091,655 $ 0.78
===================================================================================================================
-------------------------------------------------------------------------------------------------------------------
Three months ended September 30, 2004 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
-------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 6,784 8,933,029 $ 0.76
Effect of dilutive securities (Stock options) 132,789
Diluted EPS
===================================================================================================================
Income available to common shareholders plus assumed conversions $ 6,784 9,065,818 $ 0.75
===================================================================================================================
The effect of dilutive securities calculation for the three-month period ended
September 30, 2004 excludes stock options of 218,049 because the exercise price
of the options was greater than the average market value of the Company's common
stock during the period.
-------------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 2005 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
-------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 20,471 8,953,771 $ 2.29
Effect of dilutive securities (Stock options) 134,511
Diluted EPS
===================================================================================================================
Income available to common shareholders plus assumed conversions $ 20,471 9,088,282 $ 2.25
===================================================================================================================
9
3. Earnings Per Share (continued)
-------------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 2004 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
-------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 19,035 8,962,955 $ 2.12
Effect of dilutive securities (Stock options) 143,519
Diluted EPS
===================================================================================================================
Income available to common shareholders plus assumed conversions $ 19,035 9,106,474 $ 2.09
===================================================================================================================
The effect of dilutive securities calculation for the nine-month period ended
September 30, 2004 excludes stock options of 123,206 because the exercise price
of the options was greater than the average market value of the Company's common
stock during the period.
* Share and per share data have been retroactively adjusted to reflect a 10%
stock dividend paid on February 15, 2005.
4. Comprehensive Income (Loss)
Three months ended Nine months ended
(in thousands) 09/30/2005 09/30/2004 09/30/2005 09/30/2004
---------------------------------------------------------------------------------------------------------------------
Net Income $ 7,110 $ 6,784 $ 20,471 $ 19,035
Net unrealized holding (losses) gains during the period (1,405) 7,819 (3,857) (98)
Memo: Pre-tax net unrealized holding (loss) gain (2,340) 13,032 (6,428) (163)
Reclassification adjustment for net realized (gain) loss on
available-for-sale securities 0 5 (11) (42)
Memo: Pretax net realized (gain) loss 0 8 (19) (70)
Other Comprehensive (Loss) Income (1,405) 7,824 (3,868) (140)
=====================================================================================================================
Total Comprehensive Income $ 5,705 $ 14,608 $ 16,603 $ 18,895
=====================================================================================================================
5. Employee Benefit Plans
The following table sets forth the amount of the net periodic benefit cost
recognized, including the following components: the service cost and interest
cost; the expected return on plan assets for the period; the amortization of the
unrecognized transitional obligation or transition asset; and the amounts of
recognized gains and losses, and prior service cost recognized for the Company's
pension plan, post-retirement plan (Life and Heath), and supplemental employee
retirement plans (SERP).
Components of Net Period Benefit Cost
Pension Benefits Life and Health SERP Benefits
Three months ended Three months ended Three months ended
(In thousands) 09/30/2005 09/30/2004 09/30/2005 09/30/2004 09/30/2005 09/30/2004
-----------------------------------------------------------------------------------------------------------------------------
Service cost $ 377 $ 334 $ 50 $ 44 $ 32 $ 18
Interest cost 434 407 80 77 99 83
Expected return on plan assets for the period (660) (579) 0 0 0 0
Amortization of transition (asset) liability 0 0 29 29 0 0
Amortization of prior service cost (33) (33) 2 2 26 26
Amortization of net loss 164 164 3 1 20 7
=============================================================================================================================
Net periodic benefit cost $ 282 $ 293 $ 164 $ 153 $ 177 $ 134
=============================================================================================================================
10
5. Employee Benefit Plans (continued)
Pension Benefits Life and Health SERP Benefits
Nine months ended Nine months ended Nine months ended
(In thousands) 09/30/2005 09/30/2004 09/30/2005 09/30/2004 09/30/2005 09/30/2004
-----------------------------------------------------------------------------------------------------------------------------
Service cost $ 1,130 $ 1,002 $ 150 $ 132 $ 97 $ 54
Interest cost 1,302 1,221 241 231 296 249
Expected return on plan assets for the period (1,980) (1,737) 0 0 0 0
Amortization of transition (asset) liability 0 0 87 87 0 0
Amortization of prior service cost (98) (99) 5 6 79 78
Amortization of net loss 492 492 10 3 60 21
=============================================================================================================================
Net periodic benefit cost $ 846 $ 879 $ 493 $ 459 $ 532 $ 402
=============================================================================================================================
The Company previously disclosed in its financial statements for the year ended
December 31, 2004, included in its 2004 Annual Report on Form 10-K, that
although it was not required to contribute to the pension plan in fiscal 2005,
it may voluntarily contribute to the pension plan in fiscal 2005. There was no
contribution to the pension plan through the first nine months of 2005.
Subsequent to September 30, 2005, the Company contributed $500,000 to the
pension plan.
In December 2003, The Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("Medicare Act") was signed into law. The Medicare Act introduced
both a Medicare prescription-drug benefit and a federal subsidy to sponsors of
retiree healthcare plans that provide a benefit at least "actuarially
equivalent" to the Medicare benefit. These provisions of the Medicare Act will
affect accounting measurements under SFAS No. 106.
In May 2004, the Financial Accounting Standards Board (FASB) issued Staff
Position (FSP) No. FAS 106-2, "Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003",
which supersedes FSP FAS 106-1 of the same title. The FSP clarifies the
accounting for the benefits attributable to new government subsidies for
companies that provide prescription drug benefits to retirees. The new
accounting requirements became effective at the beginning of the third calendar
quarter of 2004. In accordance with FSP FAS 106-1, the Company elected to defer
accounting for the economic effects of the new Medicare Act, pending specific
authoritative guidance on the accounting for the federal subsidy. The Company
has reviewed the requirements of the Medicare Act relative to its
post-retirement plan and has determined that the effects will not be material to
the Company's financial condition or results of operations.
Effective October 1, 2005, the Company amended its benefit plan related to
post-retirement medical coverage. The change includes a modification of the
benefits available for active employees below the age of 55, and employees above
the age of 55, with less than ten years of service. The modification includes
the establishment of HRA accounts for the affected employees, which in effect,
caps the Company's liability. Employees hired after December 31, 2004 do not
participate in the Company's post-retirement benefit plan. It is expected that
the modification to the plan will result in an annual savings of approximately
$250,000.
6. Financial Guarantees
FASB Interpretation No. 45 (FIN No. 45), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others; an Interpretation of FASB Statements No. 5, 57, and 107 and rescission
of FASB Interpretation No. 34 requires certain disclosures and potential
liability recognition for the fair value at issuance of guarantees that fall
within its scope. Based upon management's interpretation of FIN No. 45, the
Company currently does not issue any guarantees that would require liability
recognition under FIN No. 45, other than standby letters of credit. The Company
extends standby letters of credit to its customers in the normal course of
business. The standby letters of credit are generally short-term. As of
September 30, 2005, the Company's maximum potential obligation under standby
letters of credit was $24.9 million. Management uses the same credit policies to
extend standby letters of credit that it uses for on-balance sheet lending
decisions and may require collateral to support standby letters of credit based
upon its evaluation of the counterparty. Management does not anticipate losses
as a result of these transactions.
11
7. Recent Accounting Standards
FASB Staff Position No. FAS 115-1 and FAS 124-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments" (the
"FSP"), was issued on November 3, 2005 and addresses the determination of when
an investment is considered impaired; whether the impairment is other than
temporary; and how to measure an impairment loss. The FSP also addresses
accounting considerations subsequent to the recognition of an
other-than-temporary impairment on a debt security, and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The FSP replaces the impairment guidance in
EITF Issue No. 03-1 with references to existing authoritative literature
concerning other-than-temporary determinations (principally Statement of
Financial Accounting Standards No. 115 and SEC Staff Accounting Bulletin 59).
Under the FSP, impairment losses must be recognized in earnings equal to the
entire difference between the security's cost and its fair value at the
financial statement date, without considering partial recoveries subsequent to
that date. The FSP also requires that an investor recognize an
other-than-temporary impairment loss when a decision to sell a security has been
made and the investor does not expect the fair value of the security to fully
recover prior to the expected time of sale. The FSP is effective for reporting
periods beginning after December 15, 2005. The Company does not expect that the
application of the FSP will have a material impact on its financial condition,
results of operations or financial statement disclosures.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
BUSINESS
Tompkins Trustco, Inc. is a registered financial holding company ("Tompkins" or
"the Company") incorporated in 1995 under the laws of the State of New York and
its common stock is listed on the American Stock Exchange (Symbol: TMP).
Tompkins is headquartered at The Commons, Ithaca, New York.
Tompkins's primary business is the operation of its three community banking
subsidiaries, Tompkins Trust Company ("Trust Company"), The Bank of Castile and
The Mahopac National Bank, and its insurance agency subsidiary, Tompkins
Insurance Agencies, Inc. ("Tompkins Insurance"). Tompkins does not engage in any
other substantial business activities. Unless the context otherwise requires,
the term "Company" refers collectively to Tompkins Trustco, Inc. and its
subsidiaries.
Through its community bank subsidiaries, the Company provides traditional
banking and related financial services, which constitute the Company's only
reportable business segment. Banking services consist primarily of attracting
deposits from the areas served by the community bank subsidiaries' 35 banking
offices and using those deposits to originate a variety of commercial loans,
consumer loans, real estate loans (including commercial loans collateralized by
real estate), and leases, and providing trust and investment related services.
The Company's principal expenses are interest on deposits, interest on
borrowings, and operating and general administrative expenses, as well as
provisions for loan/lease losses. Funding sources, other than deposits, include
borrowings, securities sold under agreements to repurchase, and cash flow from
lending and investing activities. The Company provides trust and investment
services through Tompkins Investment Services, including investment management
accounts, custody accounts, trusts, retirement plans and rollovers, estate
settlement, and financial planning. Tompkins Insurance primarily provides
services consisting of property and casualty insurance for individuals and
businesses, which complement the services offered through the Company's
community bank subsidiaries.
Tompkins Insurance has eight offices located in a geographic area that closely
matches the footprint of The Bank of Castile. At year-end 2004, Tompkins
Insurance expanded its geographic presence into the Ithaca, New York market with
the acquisition of Banfield and Associates, Inc., an insurance agency in Ithaca,
New York.
The Company completed construction of Tompkins Financial Center in Batavia, New
York in the first quarter of 2005. The building houses the management of The
Bank of Castile and Tompkins Insurance. Additionally, representatives of
Tompkins Investment Services, a division of Tompkins Trust Company, have office
space available to them at this facility.
12
The banking industry is highly competitive, as deregulation has opened the
industry to nontraditional commercial banking companies. Competition for
commercial banking and other financial services is strong in the Company's
market area. Competition includes other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment companies, and other financial
intermediaries. The Company differentiates itself from its competitors through
its full complement of banking and related financial services, and through its
community commitment and involvement in its primary market areas, as well as its
commitment to quality and personalized banking services. The banking industry is
also highly regulated. As a financial holding company of three community banks,
the Company is subject to examination and regulation from the Federal Reserve
Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller
of Currency, and the New York State Banking Department.
Other external factors affecting the Company's operating results are market
rates of interest, the condition of financial markets, and both national and
regional economic conditions. The Company's community bank subsidiaries operate,
in the aggregate, 35 banking offices, including one limited-service office,
serving communities in many upstate New York markets. Economic climates in these
markets vary by region. The Western New York market served by The Bank of
Castile has been the most challenging in recent years, due to cutbacks and
layoffs by some major employers in Rochester, New York. Conditions in this
market appear to have improved recently. The economic climates in the Central
New York markets served by Tompkins Trust Company and the lower Hudson Valley
markets served by Mahopac National Bank remain favorable.
The following discussion is intended to provide the reader with a further
understanding of the consolidated financial condition and results of operations
of Tompkins for the third quarter ended September 30, 2005. It should be read in
conjunction with the Company's audited consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2004, and the unaudited condensed consolidated financial
statements and notes included elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995.
Statements contained in this Quarterly Report on Form 10-Q that are not
statements of historical fact may include forward-looking statements that
involve a number of risks and uncertainties. Such forward-looking statements are
made based on management's expectations and beliefs concerning future events
impacting the Company and are subject to certain uncertainties and factors
relating to the Company's operations and economic environment, all of which are
difficult to predict and many of which are beyond the control of the Company,
that could cause actual results of the Company to differ materially from those
expressed and/or implied by such forward-looking statements. The following
factors are among those that could cause actual results to differ materially
from the forward-looking statements: changes in general economic, market and
regulatory conditions; the development of an interest rate environment that may
adversely affect the Company's interest rate spread, other income or cash flow
anticipated from the Company's operations, investment and/or lending activities;
changes in laws and regulations affecting banks, insurance companies, bank
holding companies and/or financial holding companies; technological developments
and changes; the ability to continue to introduce competitive new products and
services on a timely, cost-effective basis; governmental and public policy
changes, including environmental regulation; protection and validity of
intellectual property rights; reliance on large customers; and financial
resources in the amounts, at the times and on the terms required to support the
Company's future businesses. In addition, such forward-looking statements could
be affected by general industry and market conditions and growth rates, general
economic and political conditions, including interest rate and currency exchange
rate fluctuations, and other factors.
Critical Accounting Policy
In the course of the Company's normal business activity, management must select
and apply many accounting policies and methodologies that lead to the financial
results presented in the consolidated financial statements of the Company. Some
of these policies are more critical than others. Management considers the
accounting policy relating to the reserve for loan/lease losses (the "reserve")
to be a critical accounting policy because of the uncertainty and subjectivity
inherent in estimating the levels of reserve needed to cover probable credit
losses within the Company's loan portfolio and the material effect that these
estimates can have on the Company's results of operations.
The Company has developed a methodology to measure the amount of estimated loan
loss exposure inherent in the loan portfolio to ensure that an adequate reserve
is maintained. The methodology includes an estimate of exposure for the
following: specifically reviewed and graded loans, historical loss experience by
product type, past due and nonperforming loans, and other internal and external
factors such as local and regional economic conditions, growth trends, and
credit policy
13
and underwriting standards. The methodology includes a review of loans
considered impaired in accordance with the Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as
well as other commercial loans and commercial mortgage loans that are evaluated
using an internal rating system. An estimated exposure amount is assigned to
these internally reviewed credits based upon a review of the borrower's
financial condition, payment history, collateral adequacy, and business
conditions. For commercial loans and commercial mortgage loans not specifically
reviewed, and for more homogenous loan portfolios such as residential mortgage
loans and consumer loans, estimated exposure amounts are assigned based upon
historical loss experience as well as past due status. Lastly, an additional
reserve is maintained based upon management's judgment and assessment of other
quantitative and qualitative factors such as regional and local economic
conditions and portfolio growth trends.
Since the methodology is based upon historical experience and trends as well as
management's judgment, factors may arise that result in different estimations.
Significant factors that could give rise to changes in these estimates may
include, but are not limited to, changes in economic conditions in the local
area, concentration of risk, and declines in local property values. While
management's evaluation of the reserve for loan/lease losses as of September 30,
2005, considers the reserve to be adequate, deterioration in credit quality,
worsening loss factors, and other assumption changes could result in the need to
increase the reserve.
All accounting policies are important and the reader of the Company's financial
statements should review these policies, described in Note 1 to the notes to
consolidated financial statements to the Company's audited consolidated
financial statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2004, and in Note 1 to the notes to the Company's
unaudited condensed consolidated financial statements in this Quarterly Report
on Form 10-Q, to gain a greater understanding of how the Company's financial
performance is reported.
OVERVIEW
For the third quarter ended September 30, 2005, net income was $7.1 million, an
increase of 4.8% compared to net income of $6.8 million for the same period in
2004. Diluted earnings per share were $0.78 for the third quarter of 2005,
compared to $0.75 for the same period in 2004. For the nine months ended
September 30, 2005, net income was up 7.5% to $20.5 million compared to $19.0
million for the nine months ended September 30, 2004. Diluted earnings per share
were $2.25 for the first nine months of 2005 compared to $2.09 for the same
period in 2004. The increase in net income for the third quarter and
year-to-date 2005 is a result of increases in net interest income and
noninterest income, and lower provisions for loan and lease losses. Net interest
income increased as a result of an improved net interest margin, growth in
average interest-earning assets (primarily loans) and growth in
noninterest-bearing deposits. The primary driver of noninterest income growth
was a strong increase in insurance commissions and fees, which was due in part
to the year-end 2004 acquisition of Banfield & Associates, Inc., an insurance
agency in Ithaca, New York. The Company's strategies include a commitment to
community banking and a diversification of revenue sources, by offering a strong
suite of products and services, including trust and investment services,
insurance sales, card services, and other banking and related financial
services, in addition to the interest and fees generated from loans and
securities.
Key performance measurements for the Company include return on average assets
and return on average shareholders' equity. Return on average assets for the
third quarter ended September 30, 2005, was 1.38%, unchanged from the same
period in 2004. Return on average shareholders' equity for the third quarter of
2005 was 15.95%, compared to 16.76% for the same period in 2004. Return on
average assets for the nine months ended September 30, 2005, was 1.35%, compared
to 1.32% for the same period in 2004. Return on average shareholders' equity for
the nine months ended September 30, 2005 was 15.76%, compared to 15.77% for the
same period in 2004. An improved net interest margin and growth in higher
yielding earning assets contributed to the increased return on average assets.
The current interest rate environment of rising short-term rates and narrow
spreads between short-term rates and long-term rates is a challenge to the
Company's operating performance. The low interest rate environment over the past
two years resulted in a decline in the Company's asset yields and cost of funds.
As rates move upwards, the Company's funding sources, including deposits, are
expected to reprice faster than its asset base, which could put pressure on the
net interest margin over the short term.
14
Asset quality as of September 30, 2005, showed improvement when compared to the
same period last year, with nonperforming assets decreasing to $4.4 million at
September 30, 2005, from $8.1 million at September 30, 2004. The ratio of
nonperforming assets to total assets improved from 0.41% at September 30, 2004,
to 0.21% at September 30, 2005. Contributing to the decrease in nonperforming
assets was the return to accruing status of a large commercial relationship as a
result of a strengthened financial position. Net charge-offs in the third
quarter and year-to-date 2005 were $264,000, and $996,000, respectively,
compared to $674,000 and $1.8 million in the same periods in 2004. With the
improvement in asset quality, the provision for loan and lease losses decreased
to $662,000 in the third quarter of 2005, from $749,000 in the same period in
2004. For the year-to-date period, the provision for loan and leases losses
decreased from $2.3 million in 2004 to $1.8 million in 2005.
Net Interest Income
The Average Consolidated Balance Sheet and Net Interest Analysis included at the
end of Part I of this Quarterly Report on Form 10-Q illustrates the trend in
average interest-earning assets and interest-bearing liabilities, and the
corresponding yield or cost associated with each. The Company earned
taxable-equivalent net interest income of $19.8 million for the three months
ended September 30, 2005, an increase of 6.1% over the same period in 2004. For
the nine months ended September 30, 2005, the Company earned taxable-equivalent
net interest income of $58.4 million, an increase of 6.3% over $55.0 million for
the first nine months of 2004. Quarter-to-date and year-to-date increases in
taxable-equivalent net interest income as compared to the same periods in 2004
are mainly a result of growth in average interest-earning assets (primarily
loans) higher yields on loans, and growth in deposits, including
noninterest-bearing deposits. Average interest-earning assets increased 4.4% and
5.0% for the three- and nine-month periods ended September 30, 2005,
respectively, as compared to the same periods in 2004. Average noninterest
bearing deposits increased 6.9% and 9.8% for the three- and nine-month periods
ended September 30, 2005, respectively, as compared to the same periods in 2004.
Taxable-equivalent interest income was up 14.5% for the third quarter and 11.8%
for the year-to-date over the comparable periods in 2004. The increase in
taxable-equivalent interest income was mainly driven by the lending portfolio,
which reflects higher yields and higher average volumes. Loan growth was
concentrated in the commercial real estate, commercial and industrial, and
residential real estate portfolios. Loan yields on commercial and industrial
loans, and commercial real estate loans benefited from increases in benchmark
market interest rates. Home equity loan yields were also higher as initial
introductory rates repriced to fully indexed rates. The average yield on
interest-bearing assets increased 51 basis points to 5.84% for the three months
ended September 30, 2005, and 35 basis points to 5.73% for the nine months ended
September 30, 2005, from the same periods in 2004.
Increases in taxable-equivalent interest income were partially offset by an
increase in interest expense driven by the increase in short-term market
interest rates. The average cost of interest-bearing liabilities increased 59
basis points to 2.17% for the three months ended September 30, 2005, and 40
basis points to 1.98% for the nine months ended September 30, 2005, from the
same periods in 2004.
The net interest margin increased from 4.06% in the third quarter of 2004 to
4.12% in the third quarter of 2005. The net interest margin for the nine months
ended September 30, 2005, was 4.15%, up from 4.10% for the same period in 2004.
The net interest margin for the quarter and year-to-date period benefited from
the growth in loans, higher loan yields and the increase in noninterest-bearing
liabilities. The spread between interest-earning assets and interest-bearing
liabilities narrowed for both the quarter and year-to-date for 2005, compared to
the same periods in 2004. The benefit of the growth in noninterest bearing
deposits offset the narrower spread resulting in the higher net interest margin.
Average commercial real estate and commercial loans increased $55.7 million and
$26.8 million, respectively, for the three months ended September 30, 2005 from
the same period last year. Average balances for commercial real estate loans and
commercial loans increased by $56.5 million and $21.7 million, respectively, for
the nine months ended September 30, 2005 from the same period last year.
Management continues to emphasize commercial services, as these commercial loan
products are typically attractive to the Company from a yield and interest rate
risk management perspective. Average residential real estate loans increased by
$41.9 million and $36.6 million, respectively, for the three and nine month
periods ended September 30, 2005, from the same periods in 2004.
Core deposits (total deposits, less brokered deposits, municipal money market
deposits, and time deposits of $100,000 or more) supported the growth in average
assets in the three and nine month periods ended September 30, 2005, compared to
the same periods in 2004. Average core deposits for the three and nine month
periods ended September 30, 2005, increased by $54.2 million and $57.3 million,
respectively, from the same periods last year. Core deposits represent the
Company's largest and lowest cost funding source, with average core deposits
representing 65.9% of average liabilities for the first nine months of 2005.
This compares to 65.8% for the same period in 2004.
15
Non-core funding sources, which include time deposits of $100,000 or more,
brokered deposits, municipal money market deposits, Federal funds purchased,
securities sold under agreements to repurchase (repurchase agreements), and
other borrowings provide additional funding to support asset growth. Average
balances on these non-core funding sources increased by $19.7 million and $22.8
million, respectively, in the three and nine months ended September 30, 2005,
from the same periods in 2004. Time deposits over $100,000 accounted for the
majority of the growth in non-core funding sources over the periods, and
represented the largest component of non-core funding sources at September 30,
2005, with a three and nine-month average balance of $211.6 million and $205.5
million, respectively.
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. Management has developed a model to measure the amount of estimated loan
loss exposure inherent in the loan portfolio to ensure that an adequate reserve
is maintained. The provision for loan and lease losses for the third quarter and
year-to-date period ended September 30, 2005, was lower than the provision for
the same periods in 2004. The provision for loan and lease losses was $1.8
million for the first nine months of 2005, down from $2.3 million for the same
period in 2004. The decrease in the provision for loan and lease losses in 2005
was a result of improved asset quality as evidenced by lower net charge-offs and
a decrease in the dollar volume of nonperforming loans. Net charge-offs were
$996,000 for the first nine months of 2005, compared to $1.8 million for the
same period in 2004. In 2004, economic weakness in the Company's Western New
York markets contributed to higher net charge-offs and provision for loan and
lease losses. The impact of the recent positive trends in asset quality on the
reserve for loan/lease losses, was offset by continued growth in the loan
portfolio. The reserve for loan/lease losses as a percentage of period end loans
was 1.07% at September 30, 2005, unchanged from that at December 31, 2004.
Noninterest Income
Although net interest income is the Company's primary revenue source,
competitive, regulatory and economic conditions have led management to target
noninterest income sources as important drivers of long-term revenue growth.
Noninterest income for the three months ended September 30, 2005, was $7.7
million, an increase of 5.6% over the same period in 2004. Noninterest income
for the nine months ended September 30, 2005, was $22.1 million, an increase of
5.4% over the same period in 2004. The growth in noninterest income for both the
quarter and year-to-date periods in 2005 over the comparable periods in 2004 is
mainly a result of strong growth in insurance commissions and fees, service
charges on deposit accounts, and a gain on the sale of real estate. The real
estate sale related to the relocation of The Bank of Castile's Warsaw, New York
office to a newly renovated facility.
Trust and investment services income was $1.2 million in the third quarter of
2005, a decrease of 2.5% from the same period in 2004. For the first nine months
of 2005, trust and investment services income of $3.9 million was flat compared
with the same period in 2004. With fees largely based on the market value and
mix of assets managed, the general direction of the stock market can have a
considerable impact on fee income. The market value of assets managed by, or in
custody of, Tompkins Investment Services was $1.5 billion at September 30, 2005,
up 5.3% from $1.4 billion at September 30, 2004. These figures include $423.3
million and $412.8 million, respectively, of Company-owned securities where
Tompkins Investment Services is custodian. Tompkins Investment Services
generates fee income through managing trust and investment relationships,
managing estates, providing custody services, and managing investments in
employee benefits plans. Services are primarily provided to customers in the
Trust Company's market area of Tompkins County; however, Tompkins Investment
Services representatives also serve clients in The Bank of Castile and Mahopac
National Bank markets. Trends for new business in trust and investments services
remain positive. The number of accounts increased by 6.4% between September 30,
2005, and September 30, 2004.
Service charges on deposit accounts increased 7.7% to $2.2 million in the third
quarter of 2005 from $2.1 million in the third quarter of 2004. For the nine
months ended September 30, 2005, service charge on deposit accounts were $6.1
million, a 4.6% increase over the same period in 2004. The largest component of
this category is overdraft fees, which is largely dependent on customer
behavior. A key factor affecting overdraft income is check volume, which has
been trending downward as a result of increasing trends in electronic
transactions. Increased fees in the third quarter of 2005 over the comparable
period of 2004 benefited from an increase in the per item charge for overdrafts,
and an increase in deposit accounts.
Insurance commissions and fees were $2.0 million in the third quarter of 2005,
an increase of 19.1% over the third quarter of 2004. For the first nine months
of 2005, insurance commissions and fees were $5.8 million, up 18.9% from $4.9
million for the same period in 2004. The Banfield & Associates, Inc., insurance
agency acquisition at year-end 2004 accounted for
16
approximately 59.0% and 59.6% of the revenue growth for the third quarter of
2005 and year-to-date 2005, respectively over the comparable periods in 2004.
Also contributing to the revenue growth over prior year was continued efforts by
Tompkins Insurance to offer services to bank customers, and by sharing certain
offices with The Bank of Castile.
Card services income increased by 2.6% or $17,000, to $663,000 for the third
quarter of 2005 over the same quarter in 2004. Card services income of $1.9
million for the nine months ended September 30, 2005 was up 5.2% from $1.8
million for the nine months ended September 30, 2004. The increase in income
over prior year was concentrated in debit card income and reflects an increased
number of cardholders, higher transaction volume and fee increases. Debit card
income totaled $454,000 for the three months ended September 30, 2005, compared
to $400,000 for the same period in 2004, and $1.3 million for the nine months
ended September 30, 2005, compared to $1.1 million for the same period in 2004.
Card services products include traditional credit cards, purchasing cards, debit
cards, and automated teller machines. Card services continues to build revenues
as technology has created opportunities to offer customers new products. This is
a highly competitive business with many large national competitors.
Other services charges were down 2.5% in the third quarter of 2005 to $793,000
from $813,000 in the same period of 2004. For the year ended September 30, 2005,
other service charges were down 8.5% to $2.2 million from $2.5 million in the
same period of 2004. The decrease in the quarter-to-date period and year-to-date
period ended September 30, 2005, from the same periods prior year, was largely
due to lower income from merchant card processing. A decrease in loan related
fees also contributed to the decrease in the year-to-date period.
Noninterest income for the third quarter of 2005 includes $270,000 of income
relating to increases in the cash surrender value of corporate owned life
insurance (COLI). This compares to $225,000 for the same period in 2004. The
increase in the third quarter 2005 was partially due to additional investments
in COLI in the second quarter 2005. For the year-to-date period COLI related
income was $786,000, down 2.6% from the same period in 2004. The COLI relates to
life insurance policies covering certain executive officers of the Company. The
Company's average investment in COLI was $25.4 million for the nine-month period
ended September 30, 2005, compared to $23.2 million for the same period in 2004.
Although income associated with the insurance policies is not included in
interest income, increases in the cash surrender value produced a tax-equivalent
return of 6.90% for the first nine months of 2005, compared to 7.42% for the
same period in 2004.
Net gains on loan sales were $47,000 in the third quarter of 2005, compared with
a gain of $66,000 during the same period last year. Year-to-date 2005 gains of
$168,000 are $17,000 or 9.2% below year-to-date 2004. Current residential
mortgage loan origination is predominately purchase volume and the majority of
loans are being originated as portfolio loans since they meet the parameters for
portfolio loans as established by the Company's Asset/Liability Management
Committee.
Other income for the third quarter of 2005 was down $72,000 over the same period
in 2004. Other income increased from $939,000 for the first nine months of 2004
to $1.1 million for the same period in 2005. This increase in year-to-date 2005
over the same period in 2004 was largely driven by a $207,000 gain on sale of
real estate related to the relocation of The Bank of Castile's Warsaw Office to
a newly renovated building and the sale of the former office building.
Noninterest Expenses
Total noninterest expenses for the third quarter of 2005 were $15.6 million, up
8.5% over the prior year's third quarter. For the first nine months of 2005,
noninterest expenses were $46.2 million, an increase of 6.8% over noninterest
expenses of $43.2 million for the same period in 2004. Factors contributing to
the expense growth in the current year include: the January 2005 acquisition of
Banfield and Associates, Inc. (an Ithaca-based insurance agency), the March 2005
opening of the Tompkins Financial Center in Batavia, NY, and the first full year
of expense associated with the Mt. Kisco Office of Mahopac National Bank, which
opened in July 2004.
Personnel-related expenses comprise the largest segment of noninterest expense,
representing 58.2% of noninterest expense for the first nine months of 2005
compared to 58.5% of noninterest expense for the first nine months of 2004. The
7.9% quarterly and 6.1% year-to-date increase in personnel-related expenses in
2005 as compared to the same periods in 2004, was primarily a result of higher
salaries and wages related to an increase in average full time equivalents
(FTEs) as well as annual salary adjustments. The increase in average FTEs is
primarily a result of staffing requirements at the Company's newer offices,
including the Banfield Agency acquisition by Tompkins Insurance in late 2004.
Healthcare costs and other postretirement benefits were also up over the third
quarter and year-to-date periods in 2004.
Expenses related to bank premises and furniture and fixtures totaled $1.9
million in the third quarter of 2005, an increase of 7.9% over the third quarter
of 2004. Expenses related to bank premises and furniture and fixtures totaled
$5.7 million for the
17
first nine months of 2005, an increase of 8.0% over the same period last year.
Recent additions to the Company's branch network, including the Mount Kisco
office of Mahopac National Bank, which opened in July 2004, and the opening of
the Tompkins Financial Center in Batavia, New York, in early 2005, as well as
higher real estate taxes, insurance and utility costs contributed to the
increased expenses for bank premises and furniture and fixtures for the quarter
and year-over-year periods.
Marketing expense is up 9.1% in the third quarter of 2005 over the same period
in 2004, and 14.5% year-to-date 2005 over year-to-date 2004. Planned marketing
initiatives for 2005 accounted for the increase in marketing expenditures over
the prior year.
Software licenses and maintenance expenses were $433,000 in the third quarter of
2005 compared to $308,000 in the third quarter of 2004, an increase of 40.6%.
For the first nine months of 2005, software licenses and maintenance expenses
were up 32.6% to $1.3 million. Increases in annual maintenance contracts
contributed to the increase in this category, as did expenses related to the
implementation of new systems.
Other operating expense amounted to $2.7 million for the third quarter of 2005,
up 10.5% from the same period 2004. The increase in other operating expense was
in numerous expense categories including software amortization, donations,
audits and examinations, and trust operations. For the year-to-date, other
operating expenses of $7.9 million are up 4.4% over the same period in 2004. The
year-to-date increase included increases in the following expense categories:
business development, printing and supplies, software amortization, professional
fees and licenses, audits and examinations, and education and training.
Income Tax Expense
The provision for income taxes provides for Federal and New York State income
taxes. The provision for the third quarter of 2005 was $3.4 million, unchanged
from the third quarter 2004. The Company's effective tax rate for the third
quarter was 32.2% compared to 33.2% in the third quarter of 2004. The income tax
provision for the nine months ended September 30, 2005, was $9.9 million,
compared to $9.4 million for the same period in 2004. The Company's effective
tax rate for the first nine months of 2005 was 32.4%, compared to 32.8% for the
same period in 2004. The decrease in the effective rate in 2005 compared with
2004 is due to higher levels of tax-advantaged income, such as income from
investments in municipal bonds, economic zone credits, and new market tax
credits.
FINANCIAL CONDITION
The Company's total assets were $2.1 billion at September 30, 2005, representing
an increase of $110.4 million over total assets reported at December 31, 2004.
Asset growth included a $75.7 million increase in total loans and a $3.8 million
increase in the carrying value of securities. Loan growth during the period is
net of $11.8 million in sales of fixed rate residential mortgage loans during
the first nine months of 2005. Loan growth was concentrated in the commercial
real estate and residential real estate loan portfolios. Deposits were up $61.1
million in the first nine months of 2005, to $1.6 billion at September 30, 2005.
The growth was concentrated in time deposits and non-interest bearing deposits.
Capital
Total shareholders' equity totaled $179.8 million at September 30, 2005, an
increase of $8.8 million from December 31, 2004. Surplus increased $42.5 million
from $75.8 million at December 31, 2004, to $118.3 million at September 30,
2005; while undivided profits decreased $29.8 million from $94.5 million at
December 31, 2004, to $64.7 million at September 30, 2005, and accumulated other
comprehensive income was down $3.9 million over the same period. The increase in
surplus and decrease in undivided profits reflects the 10% stock dividend paid
on February 15, 2005. The decrease in accumulated other comprehensive income
relates to an increase in unrealized losses on available-for-sale securities,
largely due to recent increases in interest rates. Cash dividends paid in the
first nine months of 2005 totaled approximately $7.8 million, representing 38.2%
of year to date earnings. Cash dividends of $0.87 per share paid during the
first nine months of 2005 were up from $0.82 per share for the same period in
2004. Dividends per share were retroactively adjusted to reflect the 10% stock
dividend paid on February 15, 2005.
On July 27, 2004, the Company's board of directors approved a stock repurchase
plan (the "2004 Plan") to replace the 2002 Plan, which expired in July 2004. The
2004 Plan authorizes the repurchase of up to 440,000 (adjusted for the stock
split) shares of the Company's outstanding common stock over a two-year period.
As of September 30, 2005, the Company had repurchased 21,984 shares under the
2004 Plan, all during the second quarter 2005, with an average price of $40.79.
18
The Company and its community bank subsidiaries are subject to various
regulatory capital requirements administered by Federal banking agencies.
Management believes the Company and its subsidiaries meet all capital adequacy
requirements to which they are subject. The table below reflects the Company's
capital position at September 30, 2005, compared to the regulatory capital
requirements for "well capitalized" institutions.
REGULATORY CAPITAL ANALYSIS - September 30, 2005
-------------------------------------------------------------------------------------
Actual Well Capitalized
Requirement
(Dollar amounts in thousands) Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------
Total Capital (to risk weighted assets) $ 184,303 13.7% $ 134,642 10.0%
Tier I Capital (to risk weighted assets) $ 170,919 12.7% $ 80,785 6.0%
Tier I Capital (to average assets) $ 170,919 8.4% $ 101,995 5.0%
=====================================================================================
As illustrated above, the Company's capital ratios on September 30, 2005, remain
well above the minimum requirement for well capitalized institutions. As of
September 30, 2005, the capital ratios for each of the Company's subsidiary
community banks also exceeded the minimum levels required to be considered well
capitalized.
Reserve for Loan/Lease Losses and Nonperforming Assets
Management reviews the adequacy of the reserve for loan/lease losses (reserve)
on a regular basis. Management considers the accounting policy relating to the
reserve to be a critical accounting policy, given the inherent uncertainty in
evaluating the levels of the reserve required to cover credit losses in the
Company's portfolio and the material effect that assumption could have on the
Company's results of operations. Factors considered in determining the adequacy
of the reserve and the related provision include: management's approach to
granting new credit; the ongoing monitoring of existing credits by the internal
and external loan review functions; the growth and composition of the loan and
lease portfolio; comments received during the course of independent
examinations; current local economic conditions; past due and nonperforming loan
statistics; estimated collateral values; and a historical review of loan and
lease loss experience. Based upon consideration of the above factors, management
believes that the reserve is adequate to provide for the risk of loss inherent
in the current loan and lease portfolio. Activity in the Company's reserve for
loan/lease losses during the first nine months of 2005 and 2004 is illustrated
in the table below.
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
-------------------------------------------------------------------------------------------------------------
September 30, 2005 September 30, 2004
-------------------------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date $ 1,210,789 $ 1,104,483
-------------------------------------------------------------------------------------------------------------
Beginning Balance 12,549 11,685
-------------------------------------------------------------------------------------------------------------
Provision for loan/lease losses 1,831 2,274
Loans charged off (1,600) (2,404)
Loan recoveries 604 620
-------------------------------------------------------------------------------------------------------------
Net charge-offs 996 1,784
-------------------------------------------------------------------------------------------------------------
Ending Balance $ 13,384 $ 12,175
=============================================================================================================
The reserve represented 1.07% of total loans and leases outstanding at September
30, 2005, up from 1.06% at September 30, 2004. The reserve coverage of
nonperforming loans (loans past due 90 days and accruing, nonaccrual loans, and
restructured troubled debt) increased to 3.11 times at September 30, 2005, from
1.52 times at September 30, 2004. Management is committed to early recognition
of loan problems and to maintaining an adequate reserve.
The level of nonperforming assets at September 30, 2005, and 2004 is illustrated
in the table below. Nonperforming assets of $4.4 million as of September 30,
2005, reflect a decrease of $3.7 million from $8.1 million as of September 30,
2004. The current level of nonperforming assets is modest at 0.21% of total
assets. Contributing to the decrease in nonperforming assets was an upgrade of a
large commercial relationship to accruing status based upon improved operating
performance. Approximately $224,000 of the nonperforming loans at September 30,
2005, were secured by U.S. Government guarantees, while $1.5 million were
secured by one-to-four family residential properties.
Potential problem loans/leases are loans/leases that are currently performing,
but where known information about possible credit problems of the related
borrowers causes management to have doubt as to the ability of such borrowers to
comply with the present loan payment terms and may result in disclosure of such
loans/leases as nonperforming at some time in the future. Management considers
loans/leases classified as Substandard that continue to accrue interest to be
potential problem
19
loans/leases. At September 30, 2005, the Company's internal loan review function
had identified 33 commercial relationships totaling $21.5 million, which it has
classified as Substandard, which continue to accrue interest. As of December 31,
2004, the Company's internal loan review function had classified 25 commercial
relationships totaling $13.9 million, which continue to accrue interest, as
Substandard. These loans remain in a performing status due to a variety of
factors, including payment history, the value of collateral supporting the
credits, and personal or government guarantees. These factors, when considered
in the aggregate, give management reason to believe that the current loss
exposure on these loans is not significant. The increase in the dollar amount of
potential problem loans is mainly due to the recent inclusion of a larger
commercial relationship. This relationship is largely secured by the guarantee
of a U.S government agency. At September 30, 2005, approximately $5.1 million of
potential problem loans were backed by guarantees of U.S. government agencies.
While in a performing status as of September 30, 2005, these loans exhibit
certain risk factors, which have the potential to cause them to become
nonperforming in the future. Accordingly, management's attention is focused on
these credits, which are reviewed on at least a quarterly basis.
NONPERFORMING ASSETS (In thousands)
--------------------------------------------------------------------------------------------------------
September 30, 2005 September 30, 2004
--------------------------------------------------------------------------------------------------------
Nonaccrual loans and leases $ 4,203 $ 7,797
Loans past due 90 days and accruing 100 25
Troubled debt restructuring not included above 0 190
--------------------------------------------------------------------------------------------------------
Total nonperforming loans 4,303 8,012
--------------------------------------------------------------------------------------------------------
Other real estate, net of allowances 96 104
========================================================================================================
Total nonperforming assets $ 4,399 $ 8,116
========================================================================================================
Total nonperforming loans/leases as a percent of total loans/leases 0.34% 0.70%
========================================================================================================
Total nonperforming assets as a percentage of total assets 0.21% 0.41%
========================================================================================================
Deposits and Other Liabilities
Total deposits of $1.6 billion on September 30, 2005, were up $61.1 million, or
3.9%, from December 31, 2004. The growth was predominately in time deposits as
interest rates moved higher on targeted deposit accounts. Noninterest bearing
demand deposits were up 3.5% from year-end 2004. The growth in these deposit
categories was partially offset by lower savings and money market deposits,
driven by lower municipal money market balances. Core deposits, which represent
the primary funding source for the Company, were up 2.3% from year-end 2004. As
of September 30, 2005, core deposits of $1.23 billion represented 64.7% of total
liabilities. This compares to core deposits of $1.20 billion, representing 66.9%
of total liabilities at December 31, 2004.
Non-core funding sources for the Company totaled $641.1 million at September 30,
2005, up from $575.9 million at December 31, 2004. Non-core funding at September
30, 2005, included municipal deposits, time deposits of $100,000 or more, term
advances and repurchase agreements with the Federal Home Loan Bank ("FHLB"),
Federal funds purchased, and retail repurchase agreements. The growth in
non-core funding between December 31, 2004, and September 30, 2005, was mainly
in time deposits of $100,000 or more, which were up $104.4 million to $254.5
million at September 30, 2005, from $150.1 million at December 31, 2004. The
growth was primarily due to an increase in interest rates on certain time
deposit products.
The Company's liability for securities sold under agreements to repurchase
("repurchase agreements") amounted to $167.8 million at September 30, 2005, an
increase of $14.1 million from $153.7 million at December 31, 2004. Included in
repurchase agreements at September 30, 2005, were $95.0 million in FHLB
repurchase agreements and $72.8 million in retail repurchase agreements. Retail
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.
The Company's other borrowings represent amounts owed to the FHLB. The Company
increased its other borrowings from the FHLB by $16.5 million, to $79.7 million
at September 30, 2005, from $63.3 million at year-end 2004.
Included in the $174.7 million in term advances and repurchase agreements with
the FHLB are $106.0 million of callable advances. The majority of the advances
have call dates between 2005 and 2007 and are callable quarterly at the option
of the FHLB.
20
Liquidity
Liquidity represents the Company's ability to efficiently and economically
accommodate decreases in deposits and other liabilities, and fund increases in
assets. The Company uses a variety of resources to meet its liquidity needs,
which include cash and cash equivalents, short-term investments, cash flow from
lending and investing activities, deposit growth, securities sold under
repurchase agreements, and borrowings.
Cash and cash equivalents totaled $68.8 million as of September 30, 2005, up
from $40.9 million at December 31, 2004. Short-term investments, consisting of
securities due in one year or less, increased from $33.8 million at December 31,
2004, to $56.4 million on September 30, 2005. The Company also pledges
securities as collateral for certain non-core funding sources. Securities
carried at $522.1 million at December 31, 2004, and $531.1 million at September
30, 2005, were designated as pledged as collateral for public deposits or other
borrowings, and pledged or sold under agreements to repurchase. Pledged
securities represented 80.0% of total securities as of September 30, 2005,
compared to 79.1% as of December 31, 2004.
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, at fair
value, were $270.1 million at September 30, 2005, compared with $301.9 million
at December 31, 2004. Using current prepayment assumptions, cash flow from the
investment portfolio is estimated to be approximately $157.6 million over the
next 12 months. Investments in residential mortgage loans, consumer loans, and
leases totaled approximately $590.0 million at September 30, 2005. Aggregate
amortization from monthly payments on these loan assets provides significant
additional cash flow to the Company.
Core deposits are a primary funding source and represent a low cost funding
source obtained primarily through its branch network. In addition to core
deposits, the Company uses non-core funding sources to support asset growth.
These non-core funding sources include time deposits of $100,000 or more,
brokered time deposits, municipal money market accounts, securities sold under
agreements to repurchase and term advances from the FHLB. Rates and terms are
the primary determinants of the mix of these funding sources. Non-core funding
sources, as a percentage of total liabilities, increased from 32.0% at December
31, 2004, to 33.8% at September 30, 2005. The increase in the dollar volume of
non-core funding was concentrated in time deposits of $100,000 or more. Rates on
these products have moved up due to higher market interest rates and competitive
market conditions.
Liquidity is enhanced by ready access to national and regional wholesale funding
sources including Federal funds purchased, repurchase agreements, brokered
certificates of deposit, and FHLB advances. Through its subsidiary community
banks, the Company has borrowing relationships with the FHLB and correspondent
banks, which provide secured and unsecured borrowing capacity. At September 30,
2005, the unused borrowing capacity on established lines with the FHLB was
$275.2 million. As members of the FHLB, the Company's subsidiary banks can use
certain unencumbered mortgage-related assets to secure additional borrowings
from the FHLB. At September 30, 2005, total unencumbered residential mortgage
loans of the Company were $281.1 million. Additional assets may also qualify as
collateral for FHLB advances upon approval of the FHLB.
The Company has not identified any trends or circumstances that are reasonably
likely to result in material increases or decreases in the Company's liquidity
in the near term.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest rate risk is the primary market risk category associated with the
Company's operations. Interest rate risk refers to the volatility of earnings
caused by changes in interest rates. The Company manages interest rate risk
using income simulation to measure interest rate risk inherent in its on-balance
sheet and off-balance sheet financial instruments at a given point in time. The
simulation models are used to estimate the potential effect of interest rate
shifts on net interest income for future periods. Each quarter the
Asset/Liability Management Committee reviews the simulation results to determine
whether the exposure of net interest income to changes in interest rates remains
within board-approved levels. The Committee also discusses strategies to manage
this exposure and incorporates these strategies into the investment and funding
decisions of the Company. The Company has not made use of derivatives, such as
interest rate swaps, to manage its interest rate risk exposure.
The Company's board of directors has set a policy that interest rate risk
exposure will remain within a range whereby net interest income will not decline
by more than 10% in one year as a result of a 200 basis point change in rates.
Based upon the simulation analysis performed as of September 30, 2005, a 200
basis point upward shift in interest rates over a one-year
21
time frame would result in a one-year decline in net interest income of
approximately 3.17%, while a 200 basis point decline in interest rates over a
one-year period would result in a decrease in net interest income of 2.81%. This
simulation assumes no balance sheet growth and no management action to address
balance sheet mismatches. Over the past several years, balance sheet growth
helped to offset the effects of a lower interest rate environment and to
increase net interest income. The increase in the Prime-lending rate over the
past several years has also contributed to the increase in net interest income
as the Company's adjustable rate loans have repriced upward. The negative
exposure in a rising rate environment is mainly driven by the repricing
assumptions of the Company's core deposit base and the lag in the repricing of
the Company's non-adjustable rate assets. Longer-term, the impact of a rising
rate environment is positive as the asset base continues to reset at higher
levels, while the repricing of the rate sensitive liabilities moderates. The
negative exposure in the 200 basis point decline scenario results from the
Company's assets repricing downward more rapidly than the rates on the Company's
interest-bearing liabilities, mainly deposits, as deposit rates are at low
levels given the historically low interest rate environment over the past
several years. The aforementioned percentage changes in net interest income are
based on variations from our base case scenario, which assumes interest rates
remain unchanged from the date of the simulation. Our most recent base case
simulation showed a flat to lower net interest margin over the next 12 months.
Although the simulation model is useful in identifying potential exposure to
interest rate movements, actual results may differ from those modeled as the
repricing, maturity, and prepayment characteristics of financial instruments may
change to a different degree than modeled. In addition, the model does not
reflect actions that management may employ to manage its interest rate risk
exposure. The Company's current liquidity profile, capital position, and growth
prospects offer management a level of flexibility to take actions that could
offset some of the negative effects of unfavorable movements in interest rates.
Management believes the current exposure to changes in interest rates is not
significant in relation to the earnings and capital strength of the Company.
The table below is a Condensed Static Gap Report, which illustrates the
anticipated repricing intervals of assets and liabilities as of September 30,
2005.
Condensed Static Gap - September 30, 2005 Repricing Interval
Cumulative
(Dollar amounts in thousands) Total 0-3 months 3-6 months 6-12 months 12 months
---------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets $ 1,918,259 $ 446,074 $ 73,358 $ 188,262 $ 707,694
Interest-bearing liabilities 1,539,320 617,728 104,362 198,220 920,310
---------------------------------------------------------------------------------------------------------------------------------
Net gap position (171,654) (31,004) (9,958) (212,616)
---------------------------------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (8.25%) (1.49%) (0.48%) (10.22%)
=================================================================================================================================
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, including its Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operations of
the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of September 30, 2005. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer, concluded that as of the end of the period
covered by this Report on Form 10-Q the Company's disclosure controls and
procedures were effective in providing reasonable assurance that any information
required to be disclosed by the Company in its reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms
and that material information relating to the Company and its subsidiaries is
made known to management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding
disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's third quarter ended September 30, 2005, that
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
22
TOMPKINS TRUSTCO, INC.
Average Consolidated Balance Sheet and Net Interest Analysis
Quarter Ended Year to Date Period Ended Year to Date Period Ended
Sept-05 Sept-05 Sept-04
-----------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Average Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Interest-bearing balances
due from banks $ 1,049 $ 4 1.51% $ 3,272 $ 53 2.17% $ 11,704 $ 88 1.00%
Securities (1)
U.S. Government
Securities 522,998 5,099 3.87% 527,932 15,445 3.91% 548,546 16,151 3.93%
State and municipal (2) 123,229 1,740 5.60% 118,587 5,024 5.66% 99,978 4,506 6.02%
Other Securities (2) 20,959 271 5.13% 21,453 653 4.07% 25,060 396 2.11%
------------------------------------------------------------------------------------------------
Total securities 667,186 7,110 4.23% 667,972 21,122 4.23% 673,584 21,053 4.17%
Federal Funds Sold 54 0 0.00% 696 13 2.50% 2,518 18 0.95%
Loans, net of unearned
income (3)
Real Estate 823,074 13,016 6.27% 807,153 37,489 6.21% 713,928 32,068 6.00%
Commercial Loans (2) 297,070 5,512 7.36% 284,977 14,778 6.93% 263,238 11,172 5.67%
Consumer Loans 104,296 2,201 8.37% 102,653 6,442 8.39% 105,251 6,654 8.44%
Direct Lease Financing 14,240 226 6.30% 16,006 775 6.47% 22,066 1,091 6.60%
------------------------------------------------------------------------------------------------
Total loans, net of
unearned income 1,238,680 20,955 6.71% 1,210,789 59,484 6.57% 1,104,483 50,985 6.17%
------------------------------------------------------------------------------------------------
Total interest-
earning assets 1,906,969 28,069 5.84% 1,882,729 80,672 5.73% 1,792,289 72,144 5.38%
------------------------------------------------------------------------------------------------
Other assets 142,293 142,052 137,670
---------- ---------- ----------
Total assets $2,049,262 $2,024,781 $1,929,959
========== ========== ==========
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Deposits
Interest-bearing deposits
Interest bearing
checking, savings,
& money market 721,318 1,975 1.09% 741,869 5,308 0.96% 772,532 3,993 0.69%
Time Dep > $100,000 211,612 1,724 3.23% 205,538 4,415 2.87% 134,975 2,061 2.04%
Time Dep < $100,000 301,958 2,120 2.79% 289,459 5,617 2.59% 253,314 4,406 2.32%
Brokered Time Dep
< $100,000 37,087 303 3.24% 41,313 951 3.08% 29,291 626 2.85%
------------------------------------------------------------------------------------------------
Total interest-
bearing deposits 1,271,975 6,122 1.91% 1,278,179 16,291 1.70% 1,190,112 11,086 1.24%
Federal funds purchased &
securities sold under
agreements to repurchase 165,833 1,320 3.16% 157,505 3,588 3.05% 180,886 3,262 2.41%
Other borrowings 76,200 825 4.30% 70,968 2,389 4.50% 84,295 2,843 4.51%
------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,514,008 8,267 2.17% 1,506,652 22,268 1.98% 1,455,293 17,191 1.58%
Noninterest bearing deposits 334,533 320,828 292,067
Accrued expenses and other
liabilities 22,385 22,114 19,903
---------- ---------- ----------
Total liabilities 1,870,926 1,849,594 1,767,263
Minority Interest 1,474 1,480 1,512
Shareholders' equity 176,862 173,707 161,184
---------- ---------- ----------
Total liabilities and
shareholders' equity $2,049,262 $2,024,781 $1,929,959
========== ========== ==========
Interest rate spread 3.67% 3.75% 3.80%
------------------ ------------------ ------------------
Net interest income/margin
on earning assets $ 19,802 4.12% $ 58,404 4.15% $ 54,953 4.10%
Tax Equivalent Adjustment (713) (2,090) (1,935)
---------- ---------- ----------
Net interest income per
consolidated financial
statements $ 19,089 $ 56,314 $ 53,018
===================================================================================================================================
(1) Average balances and yields exclude unrealized gains and losses on
available-for-sale securities.
(2) Interest income includes the effects of taxable-equivalent adjustments
using a blended Federal and State income tax rate of 40% to increase tax
exempt interest income to a taxable-equivalent basis.
(3) Nonaccrual loans are included in the average loans totals presented above.
Payments received on nonaccrual loans have been recognized as disclosed in
Note 1 to the Company's Annual Report on Form 10-K for its fiscal year
ended December 31, 2004.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table includes all Company repurchases made on a monthly basis
during the period covered by this Quarterly Report on Form 10-Q, including those
made pursuant to publicly announced plans or programs.
--------------------------------------------------------------------------------------------------------------------------
Maximum Number (or
Approximate Dollar
Total Number of Shares Value) of Shares
Purchased as Part of that May Yet Be
Total Number of Average Price Paid Publicly Announced Purchased Under the
Shares Purchased Per Share Plans or Programs Plans or Programs
Period (a) (b) (c) (d)
--------------------------------------------------------------------------------------------------------------------------
July 1, 2005 through
July 31, 2005 1,420 $43.70 0 418,016
August 1, 2005 through
August 31, 2005 151 44.93 0 418,016
September 1, 2005 through
September 30, 2005 0 0 0 418,016
--------------------------------------------------------------------------------------------------------------------------
Total 1,571 $43.82 0 418,016
--------------------------------------------------------------------------------------------------------------------------
On July 27, 2004, the Company's board of directors approved a stock repurchase
plan (the "Plan"), which authorizes the repurchase of up to 440,000 of Tompkins
common stock over a two-year period. To date, 21,984 shares have been
repurchased at an average cost of $40.79.
Included above are shares acquired by the trustee of a rabbi trust established
pursuant to the Company's Stock Retainer Plan For Eligible Directors of Tompkins
Trustco, Inc., and Participating Subsidiaries. Shares purchased under the rabbi
trust are not part of the Board approved stock repurchase plan. 1,420 shares
were purchased in July 2005 at an average cost of $43.70 and 151 shares were
purchased in August 2005 at an average cost of $44.93.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
24
Item 6. Exhibits
3(ii) Bylaws of Tompkins Trustco, Inc., as amended through and
including October 25, 2005, incorporated herein by reference
to Exhibit 3(ii) to Tompkins Trustco, Inc.'s Current Report on
Form 8-K, filed with the Commission on October 28, 2005.
31.1 Certification of the Chief Executive Officer as required
by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
31.2 Certification of the Chief Financial Officer as required
by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
32.1 Certification of the Chief Executive Officer as required
by Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, 18 U.S.C. Section 1350.
32.2 Certification of the Chief Financial Officer as required
by Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, 18 U.S.C. Section 1350.
25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: November 7, 2005
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
----------------------------
James J. Byrnes
Chairman of the Board,
Chief Executive Officer
By: /s/ FRANCIS M. FETSKO
----------------------------
Francis M. Fetsko
Executive Vice President and
Chief Financial Officer
26
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION PAGES
--------------------------------------------------------------------------------
3(ii) Bylaws of Tompkins Trustco, Inc., as amended through
and including October 25 2005, incorporated by
reference to Exhibit 3(ii) to Tompkins Trustco,
Inc., Current Report on Form 8-K, filed with the
Commission on October 28, 2005
31.1 Certification of the Chief Executive Officer as
required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended 28
31.2 Certification of the Chief Financial Officer as
required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended 29
32.1 Certification of the Chief Executive Officer as
required by Rule 13a-14(b) of the Securities
Exchange Act of 1934 as amended, 18 U.S.C. Section
1350 30
32.2 Certification of the Chief Financial Officer as
required by Rule 13a-14(b) of the Securities
Exchange Act of 1934 as amended, 18 U.S.C. Section
1350 31
27