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 March 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12709
TOMPKINS [GRAPHIC OMITTED]
TRUSTCO INC.
(Exact name of registrant as specified in its charter)
New York 16-1482357
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange 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 May 1, 2006
---------------------------- -----------------------------
Common Stock, $.10 par value 9,015,761 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
March 31, 2006 and December 31, 2005
Condensed Consolidated Statements of Income for
the three months ended March 31, 2006 and 2005 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2006 and 2005 5
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the three months ended March 31, 2006 and 2005 6
Notes to Unaudited Condensed Consolidated Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-20
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 21
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 1A - Risk Factors 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 Security Holders 25
Item 5 - Other Information 25
Item 6 - Exhibits 25
SIGNATURES 25
EXHIBIT INDEX 26
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 03/31/2006 12/31/2005
------------ ------------
Cash and noninterest bearing balances due from banks $ 54,165 $ 62,436
Interest bearing balances due from banks 2,338 861
Federal funds sold 0 2,500
Available-for-sale securities, at fair value 617,581 576,242
Held-to-maturity securities, fair value of $82,761 at March 31, 2006,
and $82,768 at December 31, 2005 82,618 82,658
Loans and leases, net of unearned income and deferred costs and fees 1,259,411 1,271,349
Less: Reserve for loan/lease losses 13,803 13,677
------------------------------------------------------------------------------------------------------------------
Net Loans/Leases 1,245,608 1,257,672
Bank premises and equipment, net 37,575 36,938
Corporate owned life insurance 27,479 27,169
Goodwill 16,704 12,286
Other intangible assets 3,146 2,160
Accrued interest and other assets 45,483 45,948
------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,132,697 $ 2,106,870
==================================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $ 703,925 688,521
Time 656,664 634,607
Noninterest bearing 342,697 359,882
------------------------------------------------------------------------------------------------------------------
Total Deposits 1,703,286 1,683,010
Federal funds purchased and securities sold under agreements to repurchase 154,023 152,651
Other borrowings 66,160 63,673
Other liabilities 22,921 24,863
------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 1,946,390 $ 1,924,197
------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 1,485 1,452
Shareholders' equity:
Common Stock - par value $.10 per share: Authorized 15,000,000 shares;
Issued: 9,062,915 at March 31, 2006; and 8,999,587 at December 31, 2005 906 900
Surplus 120,393 118,663
Undivided profits 72,911 69,228
Accumulated other comprehensive loss (8,062) (6,308)
Treasury stock, at cost - 54,609 shares at March 31, 2006,
and 53,483 shares at December 31, 2005 (1,326) (1,262)
------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 184,822 $ 181,221
------------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest in Consolidated Subsidiaries
and Shareholders' Equity $ 2,132,697 $ 2,106,870
==================================================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)
Three months ended
03/31/2006 03/31/2005
------------ ------------
INTEREST AND DIVIDEND INCOME
Loans $ 21,625 $ 18,659
Balances due from banks 57 42
Federal funds sold 5 10
Available-for-sale securities 6,614 5,710
Held-to-maturity securities 721 544
----------------------------------------------------------------------------------------------------------------
Total Interest and Dividend Income 29,022 24,965
----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 2,944 1,199
Other deposits 5,349 3,550
Federal funds purchased and securities sold under agreements to repurchase 1,311 1,064
Other borrowings 699 729
----------------------------------------------------------------------------------------------------------------
Total Interest Expense 10,303 6,542
----------------------------------------------------------------------------------------------------------------
Net Interest Income 18,719 18,423
----------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 459 452
----------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan/Lease Losses 18,260 17,971
----------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Investment services income 2,746 1,383
Insurance commissions and fees 2,204 1,854
Service charges on deposit accounts 1,910 1,849
Card services income 690 603
Other service charges 609 629
Increase in cash surrender value of corporate owned life insurance 306 253
Gains on sale of loans 34 42
Other income 396 166
Net realized gain on available-for-sale securities 0 6
----------------------------------------------------------------------------------------------------------------
Total Noninterest Income 8,895 6,785
----------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salary and wages 8,277 6,806
Pension and other employee benefits 2,346 2,024
Net occupancy expense of bank premises 1,177 1,045
Furniture and fixture expense 942 904
Marketing expense 549 547
Professional fees 363 325
Software licenses and maintenance 430 433
Cardholder expense 351 325
Amortization of intangible assets 176 161
Other operating expense 3,300 2,648
----------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 17,911 15,218
----------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense and Minority
Interest in Consolidated Subsidiaries 9,244 9,538
----------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 33 33
Income Tax Expense 2,814 3,092
----------------------------------------------------------------------------------------------------------------
Net Income $ 6,397 $ 6,413
----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 0.64 $ 0.65
Diluted Earnings Per Share $ 0.63 $ 0.64
================================================================================================================
Per share data has been retroactively adjusted to reflect a 10% stock dividend
approved on April 25, 2006, payable on May 15, 2006, to common shareholders of
record on May 3, 2006.
See accompanying notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Three months ended
03/31/2006 03/31/2005
------------ ------------
OPERATING ACTIVITIES
Net income $ 6,397 $ 6,413
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 459 452
Depreciation and amortization premises, equipment, and software 1,026 924
Amortization of intangible assets 176 161
Earnings from corporate owned life insurance (306) (253)
Net amortization on securities 432 475
Net realized gain on available-for-sale securities 0 (6)
Net gain on sale of loans (34) (42)
Proceeds from sale of loans 2,639 2,860
Loans originated for sale (2,488) (2,582)
Net gain on sale of bank premises and equipment (20) 0
Tax benefit from stock option exercises 0 22
Stock-Based compensation expense 150 0
Increase in accrued interest receivable (654) (578)
Increase in accrued interest payable 358 441
Other, net (985) 290
-----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 7,150 8,577
-----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 15,833 48,319
Proceeds from sales of available-for-sale securities 0 15,826
Proceeds from maturities of held-to-maturity securities 5,479 4,721
Purchases of available-for-sale securities (60,495) (77,619)
Purchases of held-to-maturity securities (5,471) (6,372)
Net decrease (increase) in loans 11,488 (21,699)
Proceeds from sale of banks premises and equipment 63 0
Purchases of bank premises and equipment (1,540) (1,787)
Net cash used in acquisitions (2,565) 0
Other, net 62 0
-----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (37,146) (38,611)
-----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in demand, money market,
and savings deposits (1,781) (47,295)
Net increase in time deposits 22,057 92,622
Net increase (decrease) in securities sold under agreements
to repurchase and Federal funds purchased 1,372 (12,209)
Increase in other borrowings 6,500 4,000
Repayment of other borrowings (4,092) (284)
Cash dividends (2,714) (2,442)
Cash paid in lieu of fractional shares - 10% stock dividend 0 (13)
Common stock repurchased and returned to unissued status (1,644) 0
Net proceeds from exercise of stock options 1,004 106
-----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 20,702 34,485
-----------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (9,294) 4,451
Cash and cash equivalents at beginning of period 65,797 40,932
-----------------------------------------------------------------------------------------------------------------
Total Cash & Cash Equivalents at End of Period $ 56,503 $ 45,383
=================================================================================================================
Supplemental Information:
Cash paid during the year for:
Interest $ 9,945 $ 6,102
Taxes 1,790 1,578
Non-cash investing and financing activities:
Fair value of non-cash assets acquired in purchase acquisitions $ 805 $ 0
Fair value of liabilities assumed in purchase acquisitions $ 899 $ 0
Fair value of shares issued for acquisitions $ 2,162 $ 0
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
-----------------------------------------------------------------------------------------------------------------------------------
Balances at January 1, 2005 $ 816 $ 75,837 $ 94,522 $ 871 ($ 1,044) $ 171,002
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 6,413 6,413
Other comprehensive loss (5,572) (5,572)
-----------
Total Comprehensive Income 841
===========
Cash dividends ($0.25 per share) (2,442) (2,442)
Exercise of stock options and related
tax benefit (6,377 shares, net) 1 127 128
Effect of 10% stock dividend 82 42,380 (42,462) 0
Directors deferred compensation plan
(528 shares, net) 35 (35) 0
Cash paid in lieu of fractional shares
(279 shares) (13) (13)
-----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2005 $ 899 $ 118,379 $ 56,018 ($ 4,701) ($ 1,079) $ 169,516
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Balances at January 1, 2006 $ 900 $ 118,663 $ 69,228 ($ 6,308) ($ 1,262) $ 181,221
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 6,397 6,397
Other comprehensive loss (1,754) (1,754)
-----------
Total Comprehensive Income 4,643
===========
Cash dividends ($0.27 per share) (2,714) (2,714)
Exercise of stock options and related
tax benefit (44,290 shares, net) 4 1,000 1,004
Common stock repurchased and returned to
unissued status (34,938 shares) (3) (1,641) (1,644)
Directors deferred compensation plan
(1,126 shares, net) 64 (64) 0
Compensation expense stock options 150 150
Shares issued for purchase acquisition
(53,976 shares) 5 2,157 2,162
-----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2006 $ 906 $ 120,393 $ 72,911 ($ 8,062) ($ 1,326) $ 184,822
===================================================================================================================================
Per share data has been retroactively adjusted to reflect a 10% stock dividend
approved on April 25, 2006, payable on May 15, 2006, to common shareholders of
record on May 3, 2006.
See accompanying notes to unaudited condensed consolidated financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Headquartered in Ithaca, New York, Tompkins Trustco, Inc., ("Tompkins" or the
"Company") is registered as a financial holding company with the Federal Reserve
Board under the Bank Holding Company Act of 1956, as amended. The Company
conducts its business through its (i) three wholly-owned banking subsidiaries,
Tompkins Trust Company, The Bank of Castile and The Mahopac National Bank
("Mahopac National Bank"), its (ii) wholly-owned insurance subsidiary, Tompkins
Insurance Agencies, Inc., and its (iii) wholly-owned fee-based financial
planning and management subsidiary, AM&M Financial Services, Inc. ("AM&M").
Unless the context otherwise requires, the term "Company" refers to Tompkins
Trustco, Inc. and its subsidiaries. The Company's principal offices are located
at The Commons, Ithaca, New York 14851, and its telephone number is (607)
273-3210. The Company's common stock is traded on the American Stock Exchange
under the Symbol "TMP."
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 and the instructions for Form
10-Q and Rule 10-01 of Regulation S-X. 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 policies
management consider critical in this respect are the determination of the
reserve for loan/lease losses, and the expenses and liabilities associated with
the Company's pension and post-retirement benefits.
In management's opinion, the unaudited condensed consolidated financial
statements reflect all adjustments of a normal recurring nature. The results of
operations for the interim periods are not necessarily indicative of the results
of operations to be expected for the full year ended December 31, 2006. 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, 2005. On January 1, 2006, the Company began recognizing
compensation expense for stock options with the adoption of Statement of
Financial Accounting Standard ("SFAS") No. 123 (Revised), "Share-Based Payment"
("SFAS No. 123(R)"). There have been no other significant changes to the
Company's accounting policies from those presented in the 2005 Annual Report on
Form 10-K.
The consolidated financial information included herein combines the results of
operations, the assets, liabilities, and shareholders' equity of the Company and
its subsidiaries. Amounts in the prior period's consolidated financial
statements are reclassified when necessary to conform to the current period's
presentation. All significant intercompany balances and transactions are
eliminated in consolidation.
On April 25, 2006, the Company's Board of Directors approved a 10% stock
dividend payable on May 15, 2006, to holders of record of the Company's common
stock on May 3, 2006. Earnings per share and dividends per share data contained
in this Form 10-Q have been retroactively adjusted to reflect this 10% stock
dividend.
3. Stock Plans and Stock-Based Compensation
The Company's 2001 Stock Option Plan, as amended, (the "Stock Option Plan")
authorizes the grant of options to purchase up to 1,028,500 shares of the
Company's common stock. The Board of Directors of Tompkins may grant stock
options to officers, employees and certain other qualified individuals. Stock
options are granted at an exercise price equal to the stock's fair market value
at the date of grant, may not have a term in excess of ten years, and have
vesting periods that range between one and seven years from the grant date.
Prior to the adoption of the Stock Option Plan, the Company had similar stock
option plans that authorized up to 597,861 shares of authorized but unissued
common stock. These prior plans remain in effect solely with respect to
unexercised options issued under these plans.
7
The following table presents the activity related to options under all plans for
the three months ended March 31, 2006.
Weighted Average Weighted Average Aggregate
Number of Shares Exercise Price Remaining Intrinsic Value
Contractual Term
----------------------------------------------------------------------------------------------------------------------
Outstanding at January 1, 2006 571,694 $ 34.35
Granted 213,150 46.63
Exercised (55,956) 25.99
Forfeited (1,000) 46.63
----------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 2006 727,888 38.57 7.47 $ 6,972,580
======================================================================================================================
Exercisable at March 31, 2006 402,666 $ 33.80 6.24 $ 5,778,739
======================================================================================================================
The Company's policy is to issue original issue shares for stock options rather
than treasury shares. The Company granted 213,150 options to its employees in
the first quarter of 2006. No options were granted in the first quarter of 2005.
The weighted average grant-date fair value of the options granted in 2006 was
$12.63. The total intrinsic value, which is the amount by which the fair value
of the underlying stock exceeds the exercise price of an option on the exercise
date of options exercised during the three months ended March 31, 2006 and 2005
was $1.2 million and $186,000, respectively.
As of March 31, 2006, unrecognized compensation cost related to unvested stock
options totaled $2.9 million.
The amount of cash received from the exercise of stock options for the three
months ended March 31, 2006 and 2005 was $899,000 and $106,000. The tax benefit
realized from stock options exercised during the three months ended March 31,
2006 and 2005 was $105,000 and $22,000, respectively.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No 123
(Revised), "Share-Based Payment" ("SFAS No. 123(R)") on January 1, 2006, using
the modified prospective method. Under this method, compensation costs
recognized beginning in 2006 includes: (a) the compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based upon the grant date fair value estimated in accordance with the provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation", and (b) the
compensation cost for all share-based payments granted subsequent to January 1,
2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123(R). Results from prior periods have not been
restated. Prior to adoption of SFAS No. 123(R) on January 1, 2006, the Company
applied Accounting Principles Board Opinion (APB Opinion) No. 25, "Accounting
for Stock Issued to Employees," ("APB No. 25") and related interpretations in
accounting for its stock option plan. Under APB No. 25, 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 granted options
with the exercise price equal to the fair value of the underlying stock at the
grant date, there was no compensation expense recorded in net income in 2005.
In December 2005, the Compensation Committee of the Board of Directors of
Tompkins approved the accelerated vesting of all then currently outstanding
unvested stock options, except for those options issued to executive officers of
Tompkins. The decision to accelerate the vesting, which was effective on
December 27, 2005, was made primarily to reduce non-cash compensation expense
that the Company would have recorded in its income statement in future periods
upon the adoption of SFAS No. 123(R) in January 2006. The Compensation Committee
believed it was in the best interest of its shareholders to accelerate the
vesting of these options to eliminate compensation expense in future periods. It
is expected that in 2006 Tompkins will not be required to recognize
approximately $434,000, net of taxes, as a result of the accelerated vesting.
Tompkins estimates that the accelerated vesting will result in lower
compensation expense related to stock options of approximately $1.2 million, net
of taxes, over the remaining vesting period of the affected options. The
affected options were previously awarded to officers and employees under the
Stock Option Plan. There is no change to the Company's compensation philosophy
and all other terms and conditions applicable to such options, including the
exercise prices and exercise periods, remain unchanged. No options held by
executive vice presidents or chief executive officers were affected by the
vesting acceleration. As a result of accelerated vesting, options to purchase up
to 201,188 shares of common stock became immediately exercisable. In the absence
of such, the options would have vested on dates ranging from April 18, 2006 to
October 3, 2010.
8
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No.
123(R) to all outstanding and unvested awards in 2005.
Three months ended
(In thousands except per share data) 03/31/2005
-----------------------------------------------------------------------------------------------
Net Income:
As reported $ 6,413
Deduct: Total stock-based employee compensation expense determined under
fair value based method for all awards, net of all related tax effects 219
-----------------------------------------------------------------------------------------------
Pro forma $ 6,194
-----------------------------------------------------------------------------------------------
Basic earnings per share:
As reported $ 0.65
-----------------------------------------------------------------------------------------------
Pro forma 0.63
-----------------------------------------------------------------------------------------------
Diluted earnings per share:
As reported $ 0.64
-----------------------------------------------------------------------------------------------
Pro forma 0.62
===============================================================================================
Per share data has been retroactively adjusted to reflect a 10% stock dividend
approved on April 25, 2006.
The Company uses the Black-Scholes option-valuation model to determine the fair
value of each option at the date of grant. This valuation model estimates fair
value based on the assumptions listed in the table below. The risk-free interest
rate is the interest rate available on zero-coupon U.S. Treasury instruments
with a remaining term equal to the expected term of the share option at the time
of grant. The expected dividend yield is based on dividend trends and the market
price of the Company's stock price at grant. Volatility is largely based on
historical volatility of the Company's stock price. Expected term is based upon
historical experience of employee exercises and terminations as well as the
vesting term of the grants.
2006 2005
-------------------------------------------------------------------------------
Risk-free interest rate 4.32% N/A
Expected dividend yield 2.60% N/A
Volatility 28.28% N/A
Expected life (years) 6.5 N/A
===============================================================================
4. Earnings Per Share
The Company follows the provisions of SFAS No. 128, "Earnings Per Share"
("EPS"). Share and per share data have been retroactively adjusted to reflect a
10% dividend approved on April 25, 2006. A computation of Basic EPS and Diluted
EPS for the three-month periods ending March 31, 2006 and 2005 is presented in
the table below.
-------------------------------------------------------------------------------------------------------------
Weighted
Average Per
Three months ended March 31, 2006 Net Income Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------------------------
Basic EPS:
Income available to holders of common stock $ 6,397 9,940,364 $ 0.64
Effect of dilutive securities:
Stock options 137,794
Diluted EPS:
Income available to holders of common stock plus assumed conversions $ 6,397 10,078,158 $ 0.63
=============================================================================================================
The effect of dilutive securities calculation for March 31, 2006 excludes stock
options covering 256,685 shares of common stock because they are anti-dilutive.
9
-------------------------------------------------------------------------------------------------------------
Weighted
Average Per
Three months ended March 31, 2005 Net Income Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------------------------
Basic EPS:
Income available to holders of common stock $ 6,413 9,848,797 $ 0.65
Effect of dilutive securities:
Stock options 166,608
Diluted EPS:
Income available to holders of common stock plus assumed conversions $ 6,413 10,015,405 $ 0.64
=============================================================================================================
5. Comprehensive Income
Three months ended
(In thousands) 03/31/2006 03/31/2005
--------------------------------------------------------------------------------------------------------
Net income $ 6,397 $ 6,413
--------------------------------------------------------------------------------------------------------
Net unrealized holding losses during the period (1,754) (5,568)
Memo: Pre-tax net unrealized holding loss (2,923) (9,280)
Reclassification adjustment for net realized gain on
Available-for-sale securities 0 (4)
Memo: Pretax net realized gain 0 (6)
--------------------------------------------------------------------------------------------------------
Other comprehensive loss (1,754) (5,572)
--------------------------------------------------------------------------------------------------------
Total comprehensive income $ 4,643 $ 841
========================================================================================================
6. Employee Benefit Plans
The following table sets forth the amount of the net periodic benefit cost
recognized by the Company for the Company's pension plan, post-retirement plan
(Life and Health), and supplemental employee retirement plans (SERP) 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, prior service cost recognized, and gain or loss recognized due to
settlement or curtailment, for.
Components of Net Period Benefit Cost
Pension Benefits Life and Health SERP Benefits
Three months ended Three months ended Three months ended
(In thousands) 03/31/2006 03/31/2005 03/31/2006 03/31/2005 03/31/2006 03/31/2005
-----------------------------------------------------------------------------------------------------------------------------
Service cost $ 450 $ 377 $ 13 $ 50 $ 45 $ 32
Interest cost 465 434 64 81 99 99
Expected return on plan assets for the period (690) (660) 0 0 0 0
Amortization of transition (asset) liability 0 0 18 29 0 0
Amortization of prior service cost (33) (33) 0 2 10 26
Amortization of net loss 181 164 0 3 28 20
-----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 373 $ 282 $ 95 $ 165 $ 182 $ 177
=============================================================================================================================
The Company amended its plan for post-retirement health benefits in 2005. For
employees commencing employment after January 1, 2005, the Company will not
contribute to post-retirement plan of benefits. Retirees and employees who were
currently eligible to retire were unaffected by the amendments. Generally, all
other current employees were eligible for Health Retirement Accounts (HRA's)
with an initial balance equal to the amount of the Company's estimated current
10
liability. Contributions to the plan will be limited to an annual contribution
of 4% of the total HRA balances. Employees, upon retirement, will be able to
utilize their HRA for qualified health costs and deductibles.
The Company previously disclosed in its audited consolidated financial
statements for the year ended December 31, 2005, contained in the Company's
Annual Report on Form 10-K, that although the Company was not required to
contribute to the pension plan in 2006, it may voluntarily contribute to the
pension plan in 2006. There was no contribution to the pension plan through the
first three months of 2006.
7. Financial Guarantees
Financial Accounting Standards Board ("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 March 31, 2006, the Company's maximum potential
obligation under standby letters of credit was $23.6 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.
8. Goodwill and Other Intangible Assets
On January 6, 2006, the Company completed its acquisition of AM&M Financial
Services, Inc. (AM&M), a fee-based financial planning firm headquartered in
Pittsford, New York. Under the terms of the Agreement and Plan of Merger dated
November 21, 2005 by and between the Company and AM&M, the Company acquired all
of the issued and outstanding shares of AM&M stock for an initial merger
consideration of $2,375,000 in cash and 53,976 shares of Tompkins common stock.
In addition to the merger consideration paid at closing, additional contingent
amounts of up to $8.5 million (payable one-half in cash and one-half in Tompkins
common stock) may be paid over a period of four years from closing, depending on
the operating results of AM&M. The merger resulted in intangible assets of $4.7
million, including goodwill of $3.8 million, customer related intangible of
$845,000, and a covenant-not-to-compete of $94,000. The customer related
intangible and the covenant-not-to-compete are being amortized over 10 years and
6 years, respectively.
Effective March 1, 2006, Tompkins Insurance acquired the Farrell-Messler Agency,
an insurance agency in Trumansburg, New York, in a cash transaction. The
transaction resulted in goodwill of $667,000, customer related intangibles of
$114,000 and a covenant-not-to-compete of $79,000. The covenant-not-to-compete
and other identifiable intangibles are being amortized over 6 years.
9. Accounting Pronouncements
On March 17, 2006, the FASB issued Statement No. 156, "Accounting for Servicing
of Financial Assets - an amendment of FASB Statement No. 140" ("SFAS 156"). SFAS
156 amends FASB Statement No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities-a replacement of FASB
Statement No. 125" ("SFAS 140"). SFAS 156 permits entities to subsequently
measure servicing rights at fair value and report changes in fair value in
earnings rather than amortize servicing rights in proportion to and over the
estimated net servicing income or loss and assess the rights for impairment or
the need for an increased obligation as required under SFAS 140. Entities that
elect to subsequently measure their servicing rights at fair value may no longer
find it necessary to qualify for and apply the provisions of FASB Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," to achieve
an income statement effect similar to the application of hedge accounting for
instruments used to manage the effect of interest rate changes on servicing
rights.
SFAS 156 is effective as of the beginning of an entity's first fiscal year that
begins after September 15, 2006. Earlier adoption of the Statement is permitted
as of the beginning of an entity's fiscal year, provided the entity has not yet
issued financial statements for any interim period of that fiscal year.
Management does not expect the adoption to have a material impact on the
Company's financial condition, results of operations or cash flows.
11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
BUSINESS
Tompkins Trustco, Inc. ("Tompkins" or the "Company") is a registered financial
holding 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 is the
corporate parent of three community banks: Tompkins Trust Company ("Trust
Company"), The Bank of Castile and The Mahopac National Bank ("Mahopac National
Bank"); an insurance agency, Tompkins Insurance Agencies, Inc. ("Tompkins
Insurance"); and a fee-based financial planning and wealth management, AM&M
Financial Services, Inc. ("AM&M). 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, a division of Trust Company,
including investment management accounts, custody accounts, trusts, retirement
plans and rollovers, estate settlement, and financial planning.
Tompkins Insurance is headquartered in Batavia, New York, and offers property
and casualty insurance to individuals and businesses primarily in Western New
York. Over the past several years, Tompkins Insurance has expanded its efforts
to offer services to bank customers of the Company's community banking
subsidiaries by sharing certain offices with The Bank of Castile. Tompkins
Insurance has four stand-alone offices in Western New York and seven offices
that it shares with The Bank of Castile. In the past two years, Tompkins
Insurance has expanded its presence in Tompkins County with the acquisition of
three insurance agencies in the county.
AM&M is headquartered in Pittsford, New York and offers fee-based financial
planning services through three operating companies: (1) AM&M Planners, Inc.,
which provides fee based financial planning and wealth management services for
corporate executives, small business owners and high net worth individuals; (2)
Ensemble Financial Services, Inc., an independent broker-dealer and leading
outsourcing company for financial planners and investment advisors; and (3)
Ensemble Risk Solutions, Inc., which creates customized risk management plans
using life, disability and long-term care insurance products.
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 interest rate environment of rising short-term
rates and flat to lower longer-term rates has pressured the performance of the
banking subsidiaries over the past several years. Growth in loans and deposits
and well as continued efforts to expand its fee-based businesses has helped to
offset the pressures of the current interest rate environment. 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 recently improved. 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.
12
The following discussion is intended to provide the reader with an understanding
of the consolidated financial condition and results of operations of Tompkins
for the first quarter ended March 31, 2006. 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, 2005, 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. The
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
matters 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 Policies
In the course of the Company's normal business activity, management must select
and apply many accounting policies and methodologies that lead to the financial
results presented in the consolidated financial statements of the Company. Some
of these policies are more critical than others. Management considers the
accounting policy relating to the reserve for loan/lease losses (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 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 and underwriting standards. The methodology includes a review of
loans considered impaired in accordance with the Statement of Financial
Accounting Standards (SFAF) 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, additional reserves are maintained based upon management 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 changes in local property values. While
management's evaluation of the reserve for loan/lease losses as of March 31,
2006, considers the reserve to be adequate, under adversely different conditions
or assumptions, the Company would need to increase the reserve.
13
Another critical accounting policy is the policy for pensions and
post-retirement benefits. Expenses and liabilities associated with the Company's
pension and post-retirement benefit plans are based on estimates of future
salary increases, employment levels, employee retention, discount rates, life
expectancies, and the long-term rates of investment returns. Changes in these
assumptions due to market conditions, governing laws and regulations, or Company
specific circumstances may result in material changes to the Company's pension
and post-retirement expenses.
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 financials 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, 2005, to gain a greater understanding of how the
Company's financial performance is reported.
OVERVIEW
For the quarter ended March 31, 2006, net income of $6.4 million was unchanged
from the same period in 2005. Diluted earnings per share were $0.63 for the
first quarter of 2006, compared to $0.64 for the same period in 2005. In
addition to earnings per share, key performance measurements for the Company
include return on average assets and return on average shareholders' equity.
Return on average assets (ROA) for the quarter ended March 31, 2006, was 1.22%
compared to 1.30% for the quarter ended March 31, 2005. Return on average
shareholders' equity (ROE) for the first quarter of 2006 was 14.02%, compared to
15.14% for the same period in 2005. ROA and ROE were negatively affected by a
compressed net interest margin.
A flattened yield curve and rising deposit rates contributed to a compressed net
interest margin in the first quarter of 2006 compared to the first quarter of
2005. The effects of the compressed net interest margin was offset by growth in
average loans and core deposits, including noninterest-bearing deposits,
resulting in a 1.6% increase in net interest income. Noninterest income was up
31.1% in the first quarter of 2006 from the same period prior year, driven by
growth in investment services income and insurance commissions and fees. The
recent acquisition of AM&M contributed to the growth in these fee businesses.
Noninterest expenses were up 17.7% over the first quarter of 2005, which
includes higher compensation and benefit-related costs. Costs associated with
certain strategic initiatives also contributed to higher costs in the first
quarter of 2006, including: the March 2006 opening of our Southeast Office of
Mahopac National Bank (our fifth full-service office in Putnam County); Tompkins
Insurance's acquisition of the Farrell-Messler Agency in Trumansburg, New York
in March 2006; and the recent expansion of retail brokerage services.
Asset quality for the first quarter 2006 improved when compared to the same
period last year, with nonperforming assets decreasing to $3.9 million at March
31, 2006, from $6.6 million at March 31, 2005. The ratio of nonperforming assets
to total assets improved from 0.33% at March 31, 2005, to 0.18% at March 31,
2006. Net charge-offs in the first quarter of 2006 were $333,000, compared to
$81,000 in the first quarter of 2005.
RESULTS OF OPERATIONS
Net Interest Income
The Average Consolidated Balance Sheet and Net Interest Analysis included in
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 $19.5 million for the three months ended March 31, 2006, an
increase of 2.0% over the same period in 2005. Taxable-equivalent net interest
income benefited from growth in average earning assets, primarily loans, higher
interest rates on loans, and growth in deposits, including noninterest bearing
deposits.
Taxable-equivalent interest income was up $4.1 million or 16.1% for the first
quarter of 2006 over the comparable period in 2005. The increase in
taxable-equivalent interest income was primarily a result of higher loan yields
and higher average loan volumes. Loan growth was primarily 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. During the first
quarter, the prime interest rate increased by 50 basis points to 7.75%, which is
200 basis points higher than the prime interest rate of 5.75% in the first
quarter of 2005. Home equity loan yields were also higher as initial
introductory rates repriced to fully indexed rates. The average yield on
interest-bearing assets increased 54 basis points to 6.15% for the three months
ended March 31, 2006, from the same period in 2005.
Average earning assets for the first quarter of 2006 increased by $109.2
million, or 5.9% over the same period in 2005. Growth in average earning assets
was concentrated in commercial and residential lending products. Average total
loans grew by $80.5 million, which included a $40.0 million increase in average
commercial real estate loans, a $19.2 million increase in
14
average residential real estate loans, and a $30.5 million increase in average
commercial loans. Average commercial lending products represented 53.8% of
average total loans at March 31, 2006, compared to 50.5% at March 31, 2005.
Consumer loans and direct financing leases were down by $3.0 million and $6.2
million, respectively. The growth in the loan portfolio occurred across the
Company's banking subsidiaries and is partially attributable to the new markets
served by the four banking offices opened over the past three years. Average
securities (excluding changes in unrealized gains and losses on
available-for-sale securities) for the first quarter of 2006 were up $31.6
million over the same period in 2005, while average liquid assets (Federal funds
sold and interest-bearing bank balances) were down $3.0 million over the same
period. These short-term liquid assets were used to support loan growth.
Increases in taxable-equivalent interest income were partially offset by higher
funding costs driven by the increase in short-term market interest rates and
competitive market conditions. The average cost of interest-bearing liabilities
increased 88 basis points to 2.66% for the three months ended March 31, 2006,
from the same period in 2005.
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 first three months of 2006 over the same period in 2005. Average
core deposits for the three months ended March 31, 2006, increased by $30.3
million, or 2.5%, from an average balance of $1.2 billion for the first three
months of 2005. Core deposits represent the Company's largest and lowest cost
funding source, with average core deposits representing 64.0% of average
liabilities for the first three months of 2006. This compares to 66.2% for the
same period in 2005. Growth in average core deposits included a $23.0 million or
7.4% increase in noninterest-bearing deposits. Recent additions to the Company's
branch network contributed to the growth in deposits. The cost of
interest-bearing deposits increased to 2.49% for the first quarter of 2006, from
1.51% from the first quarter of 2005, largely driven by rising market rates for
short-term financial instruments.
Non-core funding sources, which include time deposits of $100,000 or more,
brokered deposits, municipal money market deposits, Federal funds purchased,
securities sold under agreements to repurchase ("repurchase agreements"), and
other borrowings provided additional sources of funding to support asset growth.
Average balances on these non-core funding sources for the first quarter of 2006
were up by $73.3 million over average balances for the first quarter of 2005.
This net increase reflects significant growth in time deposits of $100,000 or
more, which was partially offset by declines in municipal money market deposits,
and repurchase agreements with the Federal Home Loan Bank. Average time deposits
of $100,000 or more for the first quarter of 2006 were up $107.8 million or
56.2% from the same period in 2005. The increase in market interest rates and
competitive market conditions led to an increase in the interest rates offered
on most time deposit categories. The average cost of time deposits of $100,000
or more increased to 3.98% for the quarter ended March 31, 2006 from 2.54% for
the quarter ended March 31, 2005.
The Company's taxable-equivalent net interest spread, which represents the
difference between the average rate earned on earnings assets and the average
rate paid on interest bearing liabilities, decreased by 34 basis points from
3.83% for the first quarter of 2005 to 3.49% for the first quarter of 2006.
Growth in noninterest bearing deposits over the same period helped offset some
of the effects of the narrowing interest rate spread. The taxable-equivalent net
interest margin decreased from 4.18% in the first quarter of 2005 to 4.02% in
the first quarter of 2006.
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. For the first quarter of 2006, the provision for loan/lease
losses was $459,000, compared to $452,000 for the same period in 2005. Net
charge-offs were $333,000 for the first quarter of 2006 compared to $81,000 for
the first quarter of 2005. Nonperforming loans and leases were $3.9 million, or
0.25% of total loans and leases at March 31, 2006, compared to $6.2 million, or
0.52% of total loans and leases at March 31, 2005. The reserve for loan/lease
losses as a percentage of period end loans was 1.10% at March 31, 2006, compared
1.08% at March 31, 2005.
Noninterest Income
Management considers noninterest income an important driver of long-term revenue
growth and a way to reduce earnings volatility that may result from changes in
general market interest rates. Noninterest income for the three months ended
March 31, 2006, was $8.9 million, an increase of 31.1% from the same period in
2005. For the first quarter of 2006, noninterest income represented 32.2% of
total revenue, compared to 26.9% for the same period in 2005. The primary
components of noninterest income are fees from investment services; which
includes: trust services, financial planning, wealth management services, and
brokerage related services; insurance commissions and fees; service charges on
deposit accounts; and card services income. These categories were all up in the
first quarter of 2006 over the same period in 2005.
15
Investment services income and insurance commissions and fees benefited from the
acquisition of AM&M (a fee-based financial planning and wealth management
company) on January 6, 2006, and the acquisition of Farrell-Messler (an
insurance agency) on March 3, 2006.
Investment services income was $2.7 million in the first quarter of 2006, which
is up 98.6% over the same period in 2005. Investment services reflects income
from Tompkins Investment Services and AM&M. AM&M contributed $1.2 million to the
growth in first quarter investment services income. AM&M provides fee-based
financial planning services, wealth management services, and brokerage services
to independent financial planners and investment advisors.
Tompkins Investment Services income was $1.5 million in the first quarter of
2006, an increase of $133,000 or 9.6% over the same period in 2005. 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 $1.6 billion at March 31, 2006, up 4.6% from $1.5 billion at March
31, 2005. These figures include $476.3 million and $442.4 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 8.2%
between March 31, 2006 and March 31, 2005.
Insurance commissions and fees were $2.2 million for the first three months of
2006, up 18.8% from the $1.9 million for the same period in 2005. The growth was
mainly in commercial lines revenue as well as an increase in profit-sharing
commissions from insurance underwriters. The acquisition of AM&M also
contributed approximately $136,000 to the increase in insurance commissions and
fees. AM&M offers customized risk management plans using life, disability and
long-term care insurance products. Tompkins Insurance's acquisition of
Farrell-Messler, an insurance agency in Ithaca, New York, in March 2006 also
contributed to the growth in commissions in the quarter.
Service charges on deposit accounts of $1.9 million for the first three months
of 2006 were up 3.3% compared to the same period in 2005. The largest component
of this category is overdraft fees, which is largely driven by customer
activity. A key factor affecting overdraft income is check volume, which has
been trending downward as a result of increased debit card volumes and other
electronic payment methods.
Card services income of $690,000 for the three months ended March 31, 2006, was
up 14.4% from the $603,000 earned in the first three months of 2005. 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. This is a highly competitive business with many large national
competitors.
Other service charges were $609,000 for the first quarter of 2006 compared to
$629,000 for the same period in 2005. The decrease is primarily the result of
the sale of the Company's merchant card processing business in the fourth
quarter of 2005. Merchant card processing income was $69,000 in the first
quarter of 2005, compared to $42,000 in the first quarter of 2006. As the
transition of the merchant card processing business is expected to be completed
in the second quarter of 2006, this revenue line will substantially go away.
Noninterest income for the first three months of 2006 includes $306,000 of
income relating to increases in the cash surrender value of corporate owned life
insurance (COLI). This compares to $253,000 for the same period in 2005. The
COLI relates to life insurance policies covering certain senior officers of the
Company. The Company's average investment in COLI was $27.3 million for the
three-month period ended March 31, 2006, compared to $24.1 million for the same
period in 2005. Although income associated with the insurance policies is not
included in interest income, the COLI produced a tax-equivalent return of 7.57%
for the first three months of 2006, compared to 7.10% for the same period in
2005.
Other income for the first quarter of 2006 was up $230,000 over the same period
in 2005. The addition of AM&M contributed $112,000 to the increase in other
income. In addition, the Company has an investment in a small business
investment company, Cephas Capital Partners, L.P. For the first quarter 2006,
the Company recognized income of $90,000 attributable to its investment in
Cephas compared to $40,000 for the first quarter of 2005.
16
Noninterest Expenses
Total noninterest expenses were $17.9 million for the first three months of
2006, an increase of 17.7% over noninterest expenses of $15.2 million for the
same period in 2005. The addition of AM&M contributed approximately $1.3 million
of the $2.7 million increase in noninterest expenses, the majority of which is
included in personnel related expenses ($710,000), premises and fixed assets
($87,000) and other operating expenses ($262,000).
Personnel-related expenses comprise the largest segment of noninterest expense,
representing 59.3% of noninterest expense for the first three months of 2006
compared to 58.0% of noninterest expense for the first three months of 2005. The
20.3% increase in personnel-related expenses year-over-year was primarily a
result of higher salaries and wages related to an increase in average full time
equivalent employees (FTEs), from 582 at March 31, 2005, to 648 at March 31,
2006, and annual salary adjustments. The increase in average FTEs is primarily a
result of the acquisition of AM&M, and staffing requirements at the Company's
newer offices and the recent insurance agency acquisition by Tompkins Insurance
in 2006. Compensation costs increased by $150,000 due to the expensing of stock
options required by the Company's adoption of Statement of Financial Accounting
Standard No. 123 (Revised) "Share-Based Payment" on January 1, 2006. Refer to
Note 3 "Stock Plans and Stock-Based Compensation" to the Notes to Unaudited
Condensed Consolidated Financial Statements for additional details on the impact
of the adoption of SFAS No. 123(R). Healthcare and pension expenses were also up
over the same period in 2005.
Expenses related to bank premises and furniture and fixtures totaled $2.1
million for the first three months of 2006, an increase of 8.7% over the same
period last year. Additions to the Company's branch network, the acquisition of
AM&M, as well as higher real estate taxes, insurance and utility costs
contributed to the increased expenses for bank premises and furniture and
fixtures year-over-year.
Other noninterest expenses amounted to $3.3 million in the three-month period
ended March 31, 2006, compared to $2.6 million for the same period in 2005. The
acquisition of AM&M contributed approximately $262,000 to the increase in this
category. The increase was in numerous expense categories including business
development, postage, corporate donations, printing and supplies, legal fees,
education and training, and loss on sale of other real estate.
Income Tax Expense
The provision for income taxes provides for Federal and New York State income
taxes. The provision for the three months ended March 31, 2006, was $2.8
million, compared to $3.1 million for the same period in 2005. The Company's
effective tax rate for the first three months of 2006 was 30.4%, compared to
32.4% for the same period in 2005. The decrease in the effective rate in 2006
compared with 2005 is due to higher levels of tax-advantaged income, such as
income from investments in municipal bonds in addition to economic zone credits.
FINANCIAL CONDITION
The Company's total assets were $2.1 billion at March 31, 2006, representing an
increase of $25.8 million over total assets reported at December 31, 2005. Asset
growth included a $41.3 million increase in the carrying value of securities.
Total loans decreased by $11.9 million, while cash and cash equivalents
decreased by $9.3 million. The increase in securities and decrease in cash and
equivalents reflects the reinvestment of proceeds from securities sales at
year-end 2005 in early 2006. Deposits were up $20.3 million in the first three
months of 2006, to $1.7 billion at March 31, 2006.
Capital
Total shareholders' equity totaled $184.8 million at March 31, 2006, an increase
of $3.6 million from December 31, 2005. Surplus increased by $1.7 million, from
$118.7 million at December 31, 2005, to $120.4 million at March 31, 2006; while
undivided profits increased $3.7 million from $69.2 million at December 31,
2005, to $72.9 million at March 31, 2006 and accumulated other comprehensive
loss widened $1.8 million over the same period. The increase in surplus reflects
proceeds from shares issued for stock option exercises and shares issued in
connection with the acquisition of AM&M. The increase in accumulated other
comprehensive loss relates to an increase in unrealized losses on
available-for-sale securities largely due to continued increases in short-term
market interest rates.
Cash dividends paid in the first three months of 2006 totaled approximately $2.7
million, representing 42.4% of year-to-date earnings. Cash dividends of $0.27
per share paid during the first quarter of 2006 were up 8.0% over the $0.25 per
share paid during the same period in 2005. The Company's Board of Directors
approved a 10% stock dividend on April 25, 2006. Dividends per share amounts
included in this Form 10-Q were retroactively adjusted to reflect the 10% stock
dividend approved on April 25, 2006.
17
On July 27, 2004, the Company's Board of Directors approved a stock repurchase
plan (the "2004 Plan") to replace the expiring 2002 Plan. The 2004 Plan
authorizes the repurchase of up to 440,000 shares of the Company's outstanding
common stock over a two-year period. During the first quarter of 2006, 34,938
shares were repurchased at an average price of $47.08. As of March 31, 2006,
remaining shares available for repurchase under the 2004 Plan were 383,078.
The Company and its banking subsidiaries are subject to various regulatory
capital requirements administered by Federal banking agencies. Management
believes the Company and its subsidiaries meet all capital adequacy requirements
to which they are subject. The table below reflects the Company's capital
position at March 31, 2006, compared to the regulatory capital requirements for
"well capitalized" institutions.
REGULATORY CAPITAL ANALYSIS - March 31, 2006
--------------------------------------------------------------------------------------------------------
Actual Well Capitalized
Requirement
(Dollar amounts in thousands) Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets) $ 189,491 13.8% $ 136,931 10.0%
Tier I Capital (to risk weighted assets) $ 175,688 12.8% $ 82,159 6.0%
Tier I Capital (to average assets) $ 175,688 8.3% $ 105,277 5.0%
========================================================================================================
As illustrated above, the Company's capital ratios on March 31, 2006, remain
well above the minimum requirement for well capitalized institutions. As of
March 31, 2006, the capital ratios for each of the Company's subsidiary banks
also exceeded the minimum levels required to be considered well capitalized.
Reserve for Loan/Lease Losses and Nonperforming Assets
Management reviews the adequacy of the reserve for loan/lease losses (the
"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; the level and trend of market interest rates;
comments received during the course of regulatory examinations; current local
economic conditions; past due and nonperforming loan statistics; estimated
collateral values; and a historical review of loan and lease loss experience.
Based upon consideration of the above factors, management believes that the
reserve is adequate to provide for the risk of loss inherent in the current loan
and lease portfolio. Activity in the Company's reserve for loan/lease losses
during the first three months of 2006 and 2005 is illustrated in the table
below.
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
------------------------------------------------------------------------------------------------------------
March 31, 2006 March 31, 2005
------------------------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date $ 1,264,339 $ 1,183,797
------------------------------------------------------------------------------------------------------------
Beginning Balance 13,677 12,549
------------------------------------------------------------------------------------------------------------
Provision for loan/lease losses 459 452
Loans charged off (442) (265)
Loan recoveries 109 184
------------------------------------------------------------------------------------------------------------
Net charge-offs (333) (81)
------------------------------------------------------------------------------------------------------------
Ending Balance $ 13,803 $ 12,920
============================================================================================================
The reserve represented 1.10% of total loans and leases outstanding at March 31,
2006, up from 1.08% at March 31, 2005. The reserve coverage of nonperforming
loans (loans past due 90 days and accruing, nonaccrual loans, and restructured
troubled debt) increased from 2.09 times at March 31, 2005, to 4.3 times at
March 31, 2006. Management is committed to early recognition of loan problems
and to maintaining an adequate reserve.
The level of nonperforming assets at March 31, 2006, and 2005, is illustrated in
the table below. Nonperforming assets of $3.9 million as of March 31, 2006,
reflect a decrease of $2.7 million from $6.6 million as of March 31, 2005. The
current level of nonperforming assets was 0.18% of total assets at March 31,
2006, compared to 0.33% at March 31, 2005. Approximately $227,000 of
nonperforming loans at March 31, 2006, were secured by U.S. Government
guarantees, while $784,000 were secured by one-to-four family residential
properties.
18
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 loans/leases. At March 31, 2006, the Company's internal loan
review function had identified 33 commercial relationships totaling $19.6
million, which it has classified as Substandard, which continue to accrue
interest. As of December 31, 2005, the Company's internal loan review function
had classified 34 commercial relationships as Substandard totaling $20.0
million, which continue to accrue interest. These loans remain in a performing
status due to a variety of factors, including payment history, the value of
collateral supporting the credits, and personal or government guarantees. These
factors, when considered in aggregate, give management reason to believe that
the current risk exposure on these loans is not significant. At March 31, 2006,
approximately $3.9 million of these loans were backed by guarantees of U.S.
government agencies. While in a performing status as of March 31, 2006, 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)
--------------------------------------------------------------------------------------------------------
March 31, 2006 March 31, 2005
--------------------------------------------------------------------------------------------------------
Nonaccrual loans and leases $ 3,055 $ 6,000
Loans past due 90 days and accruing 105 6
Troubled debt restructuring not included above 50 185
--------------------------------------------------------------------------------------------------------
Total nonperforming loans 3,210 6,191
--------------------------------------------------------------------------------------------------------
Other real estate, net of allowances 673 359
--------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 3,883 $ 6,550
--------------------------------------------------------------------------------------------------------
Total nonperforming loans/leases as a percent of total loans/leases 0.25% 0.52%
--------------------------------------------------------------------------------------------------------
Total nonperforming assets as a percentage of total assets 0.18% 0.33%
========================================================================================================
Deposits and Other Liabilities
Total deposits of $1.7 billion at March 31, 2006 were up $20.3 million, or 1.2%,
from December 31, 2005. The majority of the growth was in time deposits of
$100,000 or more as the rates on certain of these deposit accounts moved higher.
The rise in short-term market interest rates has led to competitive pressure to
increase rates on time deposits, resulting in consumers and businesses moving
excess funds from savings and money markets into time deposits. Core deposits,
defined as total deposits less time deposits of $100,000 or more, brokered time
deposits, and municipal money market deposits, which represent the Company's
primary funding source, were down 1.0% from year-end 2005. Core deposits totaled
$1.2 billion at March 31, 2006, and represented 63.5% of total liabilities. This
compares to core deposits of $1.2 billion, representing 64.9% of total
liabilities at December 31, 2005.
Non-core funding sources for the Company totaled $688.0 million at March 31,
2006, up from $651.0 million at December 31, 2005. Non-core funding at March 31,
2006 included municipal deposits, time deposits of $100,000 or more, term
advances and securities sold under agreements to repurchase ("repurchase
agreements") with the Federal Home Loan Bank (FHLB), and retail repurchase
agreements.
The growth in non-core funding between December 31, 2005, and March 31, 2006 was
concentrated in municipal money market accounts and time deposits of $100,000 or
more. Municipal money market deposits were up $18.6 million to $115.9 million at
March 31, 2006, while time deposits of $100,000 or more were up $14.4 million to
$310.2 million at March 31, 2006. The growth in times deposits of $100,000 or
more was primarily due to an increase in interest rates on certain time deposit
products resulting from competitive pressures and rising market interest rates.
The Company's liability for repurchase agreements amounted to $154.0 million at
March 31, 2006, which is up slightly from $152.7 million at December 31, 2005.
Included in repurchase agreements at March 31, 2006, were $82.0 million in
Federal Home Loan Bank ("FHLB") repurchase agreements and $72.0 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 include amounts owed to the FHLB. The Company
increased its other borrowings from the FHLB by $2.5 million, to $66.2 million
at March 31, 2006, from $63.7 million at year-end 2005.
Included in the $148.2 million in term advances and repurchase agreements with
the FHLB are $94.0 million of callable advances. The advances have call dates
between 2006 and 2010 and are callable if certain conditions are met.
19
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, repurchase agreements, and
borrowings. The Company may also use borrowings as part of a growth strategy.
The Company's Asset Liability Management Committee reviews periodic reports on
liquidity and interest rate sensitivity.
Cash and cash equivalents totaled $56.5 million as of March 31, 2006, down from
$65.8 million at December 31, 2005. Short-term investments, consisting of
securities due in one year or less, increased from $40.5 million at December 31,
2005, to $49.1 million on March 31, 2006. The Company also pledges securities as
collateral for certain non-core funding sources. Securities carried at $516.8
million at December 31, 2005, and $575.4 million at March 31, 2006, were pledged
as collateral for public deposits or other borrowings, and pledged or sold under
agreements to repurchase. Pledged securities represented 82.2% of total
securities as of March 31, 2006, compared to 78.4% as of December 31, 2005.
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 $333.1 million at March 31, 2006 compared with $321.2 million at
December 31, 2005. Using current prepayment assumptions, cash flow from the
investment portfolio is estimated to be approximately $136.8 million over the
next 12 months. Investments in residential mortgage loans, consumer loans, and
leases totaled approximately $580.4 million at March 31, 2006. as compared to
$587.4 million at December 31, 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 the Company's 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 33.8% at
December 31, 2005 to 35.3% at March 31, 2006. The increase in the dollar volume
of non-core funding was concentrated in municipal money market deposits and 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 banks, the
Company has borrowing relationships with the FHLB and correspondent banks, which
provide secured and unsecured borrowing capacity. At March 31, 2006, the unused
borrowing capacity on established lines with the FHLB was $390.1 million. As
members of the FHLB, the Company's subsidiary banks can use certain unencumbered
mortgage-related assets to secure additional borrowings from the FHLB. At March
31, 2006, total unencumbered residential mortgage loans of the Company were
$289.9 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 liquidity in the near
term.
20
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 considers strategies to manage
this exposure and incorporates these strategies into the investment and funding
decisions of the Company. The Company does not use 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 March 31, 2006, a 200 basis
point upward shift in interest rates over a one-year time frame would result in
a one-year decline in net interest income of approximately 3.76%, while a 200
basis point decline in interest rates over a one-year period would result in a
decrease in net interest income of 2.59%. This simulation assumes no balance
sheet growth and no management action to address balance sheet mismatches.
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 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. However, with the recent increase
in time deposit rates there is some room to lower rates on these deposits should
market rates move lower. The Company's most recent base case simulation, which
assumes interest rates remain unchanged from the date of the simulation,
reflects a relatively flat net interest margin during 2006.
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 March 31, 2006.
The analysis reflects sensitivity to rising interest rates in all repricing
intervals shown.
Condensed Static Gap - March 31, 2006 Repricing Interval
Cumulative
(Dollar amounts in thousands) Total 0-3 months 3-6 months 6-12 months 12 months
----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets $ 1,975,397 $ 474,029 $ 84,731 $ 158,987 $ 717,747
Interest-bearing liabilities 1,580,773 653,717 136,962 246,083 $ 1,036,762
----------------------------------------------------------------------------------------------------------------------------------
Net gap position (179,688) (52,231) (87,096) (319,015)
----------------------------------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (8.43%) (2.45%) (4.08%) (14.96%)
==================================================================================================================================
21
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 March 31, 2006. 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 first quarter ended March 31, 2006, that
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
22
Average Consolidated Balance Sheet and Net Interest Analysis
Year to Date Period Ended Year to Date Period Ended
Mar-06 Mar-05
-----------------------------------------------------------------------------------------------------------------------------
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
-----------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Certificates of deposit with other banks $ 5,780 $ 57 4.00% $ 7,465 $ 42 2.28%
Securities (1)
U.S. Government Securities 538,855 5,826 4.38% 525,201 5,103 3.94%
State and municipal (2) 131,049 1,903 5.89% 113,372 1,595 5.71%
Other Securities (2) 23,120 320 5.61% 22,860 167 2.96%
---------------------------------------------------------------------------
Total securities 693,024 8,049 4.71% 661,433 6,865 4.21%
Federal Funds Sold 456 5 4.45% 1,737 10 2.57%
Loans, net of unearned income (3)
Real Estate 851,336 13,710 6.53% 792,171 12,011 6.15%
Commercial Loans (2) 302,373 5,864 7.87% 271,823 4,331 6.46%
Consumer Loans 97,889 1,900 7.87% 100,890 2,068 8.31%
Direct Lease Financing 12,741 195 6.21% 18,913 312 6.69%
---------------------------------------------------------------------------
Total loans, net of unearned income 1,264,339 21,669 6.95% 1,183,797 18,722 6.41%
---------------------------------------------------------------------------
Total interest-earning assets 1,963,599 29,780 6.15% 1,854,432 25,639 5.61%
---------------------------------------------------------------------------
Other assets 155,063 142,270
---------- ----------
Total assets $2,118,662 $1,996,702
========== ==========
-----------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings,
& money market 705,709 2,341 1.35% 770,208 1,607 0.85%
Time Dep > $100,000 299,616 2,944 3.98% 191,784 1,199 2.54%
Time Dep < $100,000 304,682 2,575 3.43% 276,038 1,644 2.42%
Brokered Time Dep < $100,000 40,941 433 4.29% 41,001 299 2.96%
---------------------------------------------------------------------------
Total interest-bearing deposits 1,350,948 8,293 2.49% 1,279,031 4,749 1.51%
Federal funds purchased & securities sold under
agreements to repurchase 157,469 1,311 3.38% 150,270 1,064 2.87%
Other borrowings 63,956 699 4.43% 62,377 729 4.74%
---------------------------------------------------------------------------
Total interest-bearing liabilities 1,572,373 10,303 2.66% 1,491,678 6,542 1.78%
Noninterest bearing deposits 333,883 310,903
Accrued expenses and other liabilities 25,822 20,883
---------- ----------
Total liabilities 1,932,078 1,823,464
Minority Interest 1,466 1,470
Shareholders' equity 185,118 171,768
---------- ----------
Total liabilities and shareholders' equity $2,118,662 $1,996,702
========== ==========
Interest rate spread 3.49% 3.83%
----------------------- -----------------------
Net interest income/margin on earning assets $ 19,477 4.02% $ 19,097 4.18%
Tax equivalent adjustment (758) (674)
---------- ----------
Net interest income per consolidated
financial statements $ 18,719 $ 18,423
=============================================================================================================================
(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 the year ended
December 31, 2005.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
There has not been any material change in the risk factors
disclosure from that contained in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2005.
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)
----------------------------------------------------------------------------------------------------------------------------
January 1, 2006 through
January 31, 2006 1,656 $ 44.88 0 418,016
February 1, 2006 through
February 28, 2006 12,942 46.25 12,788 405,228
March 1, 2006 through
March 31, 2006 22,150 47.57 22,150 383,078
----------------------------------------------------------------------------------------------------------------------------
Total 36,748 $ 46.98 34,938 383,078
----------------------------------------------------------------------------------------------------------------------------
On July 28, 2004, the Company announced the Company's current stock repurchase
plan (the "Plan") approved by the Company's Board of Directors on July 27, 2004.
The Plan authorizes the repurchase of up to 440,000 of Tompkins common stock
over a two-year period. To date, 56,922 shares have been repurchased at an
average cost of $44.65.
Included above are 1,656 shares purchased in January 2006 at an average cost of
$44.88 and 154 shares purchased in February 2006 at an average cost of $47.38 by
the trustee of the rabbi trust established by the Company under the Company's
Stock Retainer Plan For Eligible Directors of Tompkins Trustco, Inc., and
Participating Subsidiaries and were part of the director deferred compensation
under that plan. Shares purchased under the rabbi trust are not part of the
Board approved stock repurchase plan.
As part of the Company's acquisition of AM&M in the first quarter of 2006, the
Company issued 53,976 shares of Tompkins common stock pursuant to an exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None
24
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
shareholders during the first quarter of fiscal 2006.
Item 5. Other Information
None
Item 6. Exhibits
10.13* Summary of Compensation Agreements for Named Executive
Officers and Directors, incorporated herein by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2005 filed with the Commission on
March 16, 2006.
10.21* Consulting Agreement between Russell K. Achzet and
Tompkins Trustco, Inc. dated January 5, 2006, incorporated
herein by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2005 filed
with the Commission on March 16, 2006.
31.1 Certification of the Principal Executive Officer as
required by Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.
31.2 Certification of the Principal Financial Officer as
required by Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.
32.1 Certification of the Principal Executive Officer as
required by Rule 13a-14(b) of the Securities Exchange Act of
1934, as amended, 18 U.S.C. Section 1350 (filed herewith).
32.2 Certification of the Principal Financial Officer as
required by Rule 13a-14(b) of the Securities Exchange Act of
1934, as amended, 18 U.S.C. Section 1350 (filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: May 8, 2006
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
----------------------------------
James J. Byrnes
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
By: /s/ FRANCIS M. FETSKO
----------------------------------
Francis M. Fetsko
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
25
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION PAGES
--------------------------------------------------------------------------------
10.13 Summary of Compensation Agreements for Named Executive
Officers and Directors, incorporated herein by
reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31,
2005filed with the Commission on March 16, 2006.
10.21 Consulting Agreement between Russell K. Achzet and
Tompkins Trustco, Inc. dated January 5, 2006,
incorporated herein by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 2005 filed with the Commission on
March 16, 2006.
31.1 Certification of Principal Executive Officer as
required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended 27
31.2 Certification of Principal Financial Officer as
required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended 28
32.1 Certification of the Principal Executive Officer as
required by Rule 13a-14(b) of the Securities Exchange
Act of 1934 as amended, 18 U.S.C. Section 1350 29
32.2 Certification of the Principal Financial Officer as
required by Rule 13a-14(b) of the Securities Exchange
Act of 1934 as amended, 18 U.S.C. Section 1350 30
26