-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I73g0tLNzU6m5VPAt7t6n4rSAYg47oaUP4l/Wifl8F0jAotedQE2Y3NS7uI/I0H3 KmZVuMYmi1T9Eq9PmrIPvA== 0000357301-00-000021.txt : 20000510 0000357301-00-000021.hdr.sgml : 20000510 ACCESSION NUMBER: 0000357301-00-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSTCO BANK CORP N Y CENTRAL INDEX KEY: 0000357301 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 141630287 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10592 FILM NUMBER: 622779 BUSINESS ADDRESS: STREET 1: 192 ERIE BLVD CITY: SCHENECTADY STATE: NY ZIP: 12305 BUSINESS PHONE: 5183773311 10-Q 1 QUARTLEY REPORT ON FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended Commission File Number 0-10592 March 31, 2000 TRUSTCO BANK CORP NY (Exact name of registrant as specified in its charter) NEW YORK 14-1630287 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 320 STATE STREET, SCHENECTADY, NEW YORK 12305 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (518) 377-3311 Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: (Title of class) Common Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes.(x) No.( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of Shares Outstanding Class of Common Stock as of April 30, 2000 --------------------------- ---------------------- $1 Par Value 53,500,334 Trustco Bank Corp NY INDEX Part I. FINANCIAL INFORMATION PAGE NO. ---------------------------------------------------------------------- Item 1. Interim Financial Statements (Unaudited): 1 Consolidated Statements of Income for the Three Months Ended March 31, 2000 and 1999 Consolidated Statements of Financial Condition 2 as of March 31, 2000 and December 31, 1999 Consolidated Statements of Cash Flows for the 3 - 4 Three Months Ended March 31, 2000 and 1999 Notes to Consolidated Interim Financial 5 - 7 Statements Independent Auditors' Report 8 Item 2. Management's Discussion and Analysis 9 - 16 Item 3. Quantitative and Qualitative Disclosures About 17 Market Risk Part II. OTHER INFORMATION Item 1. Legal Proceedings -- None Item 2. Changes in Securities -- None Item 3. Defaults Upon Senior Securities --None Item 4. Submissions of Matters to Vote of Security Holders -- None Item 5. Other Information -- None i Item 6.Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K On April 18, 2000, TrustCo filed a Current Report on Form 8-K, regarding two press releases dated April 18, 2000, detailing first quarter financial results. ii TRUSTCO BANK CORP NY Consolidated Statements of Income (unaudited) (dollars in thousands, except per share data)
3 Months Ended March 31 2000 1999 Interest income: Interest and fees on loans $ 27,432 26,560 Interest on U. S. Treasuries and agencies 3,924 2,952 Interest on states and political subdivisions 1,870 1,773 Interest on mortgage-backed securities 3,753 4,079 Other securities 1,678 2,086 Interest on federal funds sold 3,587 4,216 -------------------------------- Total interest income 42,244 41,666 -------------------------------- Interest expense: Interest on deposits: Interest-bearing checking 715 676 Savings 4,294 4,397 Money market deposit accounts 401 399 Time deposits 10,645 12,319 Interest on short-term borrowings 1,746 1,448 -------------------------------- Total interest expense 17,801 19,239 -------------------------------- Net interest income 24,443 22,427 Provision for loan losses 850 1,513 -------------------------------- Net interest income after provision for loan losses 23,593 20,914 -------------------------------- Noninterest income: Trust department income 2,086 1,871 Fees for other services to customers 2,059 2,132 Net gain/(loss) on securities transactions (1,049) (420) Other 706 1,837 -------------------------------- Total noninterest income 3,802 5,420 -------------------------------- Noninterest expenses: Salaries and employee benefits 6,372 6,224 Net occupancy expense 1,185 1,241 Equipment expense 1,215 1,797 FDIC insurance expense 104 63 Professional services 665 594 Other real estate expenses / (income) (44) (88) Other 2,425 2,371 -------------------------------- Total noninterest expenses 11,922 12,202 -------------------------------- Income before taxes 15,473 14,132 Applicable income taxes 5,203 4,809 -------------------------------- Net income $ 10,270 9,323 ================================ Net income per Common Share: - Basic $ 0.192 0.173 ================================ - Diluted $ 0.186 0.167 ================================ Per share data is adjusted for the effect of the 2 for 1 stock split declared August, 1999.
See accompanying notes to consolidated interim financial statements. 1 TRUSTCO BANK CORP NY Consolidated Statements of Financial Condition (dollars in thousands, except share data)
03/31/00 12/31/99 ASSETS: Cash and due from banks $ 35,308 54,542 Federal funds sold 258,000 266,000 Other short-term funds 7,783 9,970 ------------------ ----------------- Total cash and cash equivalents 301,091 330,512 Securities available for sale: U. S. Treasuries and agencies 201,056 185,978 States and political subdivisions 140,445 132,560 Mortgage-backed securities 200,431 205,558 Other 111,661 116,734 ------------------ ----------------- Total securities available for sale 653,593 640,830 ------------------ ----------------- Loans: Commercial 191,673 193,960 Residential mortgage loans 1,005,707 995,578 Home equity line of credit 136,727 138,339 Installment loans 21,261 22,891 ------------------ ----------------- Total loans 1,355,368 1,350,768 ------------------ ----------------- Less: Allowance for loan losses 55,666 55,820 Unearned income 878 959 ------------------ ----------------- Net loans 1,298,824 1,293,989 Bank premises and equipment 16,223 16,209 Real estate owned 1,600 1,771 Other assets 82,322 80,711 ------------------ ----------------- Total assets $ 2,353,653 2,364,022 ================== ================= LIABILITIES: Deposits: Demand $ 163,730 155,313 Interest-bearing checking 273,283 272,384 Savings accounts 641,036 641,650 Money market deposit accounts 56,437 58,557 Certificates of deposit (in denominations of $100,000 or more) 121,028 115,636 Time deposits 735,544 751,369 ------------------ ----------------- Total deposits 1,991,058 1,994,909 Short-term borrowings 145,034 152,782 Accrued expenses and other liabilities 47,017 49,975 ------------------ ----------------- Total liabilities 2,183,109 2,197,666 ------------------ ----------------- SHAREHOLDERS' EQUITY: Capital stock par value $1; 100,000,000 shares authorized, and 56,539,791 and 56,410,787 shares issued March 31, 2000 and December 31, 1999, respectively 56,539 56,411 Surplus 86,233 85,784 Undivided profits 50,743 48,491 Accumulated other comprehensive income: Net unrealized gain/(loss) on securities available for sale 274 (2,452) Treasury stock at cost - 3,122,867 and 3,002,378 shares at March 31, 2000 and December 31, 1999, respectively (23,245) (21,878) ------------------ ----------------- Total shareholders' equity 170,544 166,356 ------------------ ----------------- Total liabilities and shareholders' equity $ 2,353,653 2,364,022 ================== =================
See accompanying notes to consolidated interim financial statements. 2 TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS THREE MONTHS ENDED March 31, 2000 1999 -------- -------- Cash flows from operating activities: Net income..............................................$ 10,270 9,323 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 521 811 Gain on sales of fixed assets.......................... (48) (1,244) Provision for loan losses.............................. 850 1,513 Loss on sale of securities available for sale.......... 1,011 972 Gain on sale of securities available for sale.......... --- (552) Provision for deferred tax benefit..................... (418) (717) Decrease in taxes receivable........................... 5,624 5,176 Increase in interest receivable........................ (102) (1,148) Increase/(decrease) in interest payable................ 103 (53) Increase in other assets............................... (8,394) (17,637) Increase/(decrease) in accrued expenses................ (3,053) 156 -------- -------- Total adjustments.................................... (3,906) (12,723) -------- -------- Net cash provided by/(used in) operating activities...... 6,364 (3,400) -------- -------- Cash flows from investing activities: Proceeds from sales of securities available for sale... 49,799 76,020 Purchase of securities available for sale.............. (73,051) (83,450) Proceeds from maturities and calls of securities available for sale...................... 14,083 39,758 Net (increase)/decrease in loans....................... (5,926) 2,081 Proceeds from dispositions of real estate owned........ 212 2,936 Proceeds from sales of fixed assets.................... 53 2,079 Capital expenditures................................... (540) (448) -------- -------- Net cash provided by/(used in) investing activities.. (15,370) 38,976 -------- -------- Cash flows from financing activities: Net decrease in deposits............................... (3,851) (46,856) Decrease in short-term borrowing....................... (7,748) (3,574) Proceeds from exercise of stock options................ 577 1,312 Proceeds from sale of treasury stock................... 1,534 1,391 Purchase of treasury stock............................. (2,901) (3,176) Dividends paid......................................... (8,026) (7,369) -------- -------- Net cash used in financing activities................ (20,415) (58,272) -------- -------- Net decrease in cash and cash equivalents................ (29,421) (22,696) Cash and cash equivalents at beginning of period......... 330,512 424,929 -------- -------- Cash and cash equivalents at end of period..............$ 301,091 402,233 ======== ======== See accompanying notes to consolidated interim financial statements. (Continued)
-3- TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows Continued (Unaudited) (dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: THREE MONTHS ENDED March 31, 1999 1999 -------- -------- Interest paid.........................................$ 17,698 19,292 Income taxes paid...................................... --- 350 Transfer of loans to real estate owned................. 241 1,318 Increase/(decrease) in dividends payable............... (8) 35 Change in unrealized (gain)/loss on securities available for sale-gross of deferred taxes............ (4,605) 3,502 Change in deferred tax effect on unrealized gain/(loss) on securities available for sale...................... 1,879 (1,431)
See accompanying notes to consolidated interim financial statements. -4- TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (Unaudited) 1. Financial Statement Presentation In the opinion of the management of TrustCo Bank Corp NY (the Company), the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments necessary to present fairly the financial position as of March 31, 2000, the results of operations for the three months ended March 31, 2000 and 1999, and the cash flows for the three months ended March 31, 2000 and 1999. The accompanying Consolidated Interim Financial Statements should be read in conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial Statements, including notes thereto, which are included in TrustCo Bank Corp NY's 1999 Annual Report to Shareholders on Form 10-K. All share and per share data have been adjusted for the 2 for 1 stock split declared in August 1999. 2. Earnings Per Share A reconciliation of the component parts of earnings per share for the three month period ended March 31, 2000 and 1999 follows:
Weighted Average (In thousands, Net Shares Per Share except per share data) Income Outstanding Amounts ----------------- ---------------------- ----------------- For the quarter ended March 31, 2000: Basic EPS: Net income available to Common shareholders......... $10,270 53,444 $0.192 Effect of Dilutive Securities: Stock options............... ------ 1,745 ------- ----------------- ---------------------- ----------------- Diluted EPS $10,270 55,189 $0.186 ================= ====================== ================= For quarter ended March 31, 1999: Basic EPS: Net income available to Common shareholders......... $9,323 53,747 $0.173 Effect of Dilutive Securities: Stock options............... ------- 2,238 ------- ----------------- ---------------------- ----------------- Diluted EPS $9,323 55,985 $0.167 ================= ====================== ================= Per share data has been adjusted for the 2 for 1 stock split declared in August 1999.
5 3. Comprehensive Income On January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," (Statement 130). This Statement establishes standards for reporting and display of comprehensive income and its components. Comprehensive income includes the reported net income of a company adjusted for items that are currently accounted for as direct entries to equity, such as the mark to market adjustment on securities available for sale, foreign currency items and minimum pension liability adjustments. At the Company, comprehensive income represents net income plus other comprehensive income, which consists of the net change in unrealized gains or losses on securities available for sale for the period. Accumulated other comprehensive income represents the net unrealized gains or losses on securities available for sale as of the balance sheet dates. Comprehensive income for the three month period ended March 31, 2000 and 1999 was $12,996,000 and $7,252,000 respectively. The following summarizes the components of other comprehensive income: Unrealized gains on securities: (dollars in thousands) ------------------------------- Unrealized net holding gains arising during three months ended March 31, 2000, net of tax (pre-tax gain of $3,594) $2,128 Reclassification adjustment for net loss realized in net income during the three months ended March 31, 2000, net of tax (pre-tax loss of $1,011) (598) -------------- Other comprehensive income - three months ended March 31, 2000 $2,726 ============== Unrealized net holding losses arising during three months ended March 31, 1999, net of tax (pre-tax loss of $3,922) ($2,319) Reclassification adjustment for net loss realized in net income during the three months ended March 31, 1999 net of tax (pre-tax loss of $420) (248) -------------- Other comprehensive loss - three months ended March 31, 1999 ($2,071) ============== 6 4. Impact of Changes in Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" (Statement 137), which deferred the effective date of Statement 133 by one year, from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. Management is currently evaluating the impact, if any, on the Company's consolidated financial statements. 7 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders TrustCo Bank Corp NY: We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries (the Company) as of March 31, 2000, and the related consolidated statements of income and cash flows for the three month periods ended March 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 1999 and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 18, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived. /s/KPMG LLP ______________________________ KPMG LLP Albany, New York April 12, 2000 8 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 TrustCo Bank Corp NY Management's Discussion and Analysis March 31, 2000 The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo Bank Corp NY ("TrustCo" or "Company") during the three month period ended March 31, 2000, with comparisons to 1999 as applicable. Net interest income and net interest margin are presented on a fully taxable equivalent basis in this discussion. The consolidated interim financial statements and related notes, as well as the 1999 Annual Report to Shareholders should be read in conjunction with this review. Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period's presentation. Per share results have been adjusted for the 2 for 1 stock split declared in 1999. Forward-looking Statements Statements included in this review and in future filings by TrustCo with the Securities and Exchange Commission, in TrustCo's press releases, and in oral statements made with the approval of an authorized executive officer, which are not historical or current facts, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect TrustCo's actual results, and could cause TrustCo's actual financial performance to differ materially from that expressed in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3) competition, (4) certain vendors of critical systems or services failing to comply with Year 2000 programming issues, (5) changes in the regulatory environment, and (6) changes in general business and economic trends. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. Following this discussion is the table "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of TrustCo's average interest earning assets and interest bearing liabilities for the three months ended March 31, 2000 and 1999. Overview TrustCo recorded net income of $10.3 million, or $0.186 of diluted earnings per share for the three months ended March 31, 2000, as compared to net income of $9.3 million or $0.167 of diluted earnings per share in the same period in 1999. The primary factors accounting for the year to date increases are: 9 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 - Increase in net interest margin by 53 basis points from 3.94% in 1999 to 4.47% in 2000, - Reduction in the provision for loan losses from $1.5 million in 1999 to $850 thousand in 2000, and - Reduction in operating expenses by $280 thousand to $11.9 million. These positive factors affecting net income were partially offset by: - Reduction in interest earning assets by $82.2 million, from $2.36 billion in 1999 to $2.27 billion in 2000, - Decrease in non-interest income from $5.4 million in 1999 to $3.8 million in 2000. Asset/Liability Management The Company strives to generate superior earnings capabilities through a mix of core deposits, funding a prudent mix of earning assets. This is, in its most fundamental form, the essence of asset/liability management. Additionally, TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of net interest income to changes in interest rates to an acceptable level while enhancing profitability both on a short-term and long- term basis. Earning Assets Total interest earning assets decreased to $2.27 billion in 2000 from $2.36 billion in 1999 with an average yield of 7.62% in 2000 and 7.26% in 1999. Income on earning assets increased by $655 thousand during this same time-period from $42.6 million in 1999 to $43.3 million in 2000. The increase in interest income on earning assets was attributable to the increase in yield on these assets. Loans The average balance of loans was $1.35 billion in 2000 and $1.32 billion in 1999. The yield on loans increased from 8.09% in 1999 to 8.13% in 2000. The combination of the higher average balances and the higher rates resulted in a increase in the interest income on loans by $865 thousand. Within the category of loans, the average commercial loan balances increased by $8.4 million, residential mortgage loans increased by $36.9 million, home equity lines of credit decreased by $8.1 million, and the installment loan portfolio decreased by $3.0 million. These changes continue to reflect the competitive environment that exists for loans and the emphasis that TrustCo has for the residential mortgage loan products. Securities Available for Sale Securities available for sale had an average balance of $667.8 million during the quarter ended March 31, 2000, as compared to $678.3 million in 1999. 10 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 These balances earned an average yield of 7.29% in 2000 and 6.95% in 1999. This resulted in interest income on the securities available for sale of $12.2 million in 2000 and $11.8 million in 1999. The decrease in average balances during the quarter caused a $1.9 million decrease in the interest income, which was offset by a $2.3 million increase in interest income due to the change in the average rates. Most of the decrease in the balances of securities available for sale was centered in the categories of mortgage-backed securities and other securities, which decreased by $36.4 million and $33.7 million, respectively between the first quarter of 1999 and 2000. U.S. Treasuries and agencies and investments in states and political subdivisions increased on average $53.0 million and $6.6 million, respectively. Federal Funds Sold The 2000 first quarter average balance of federal funds sold was $250.7 million, $107.3 million less than the $357.9 million in 1999. The portfolio yield increased to 5.76% in 2000, compared to 4.78% in 1999. Changes in the yield resulted from changes in the target rate set by the Federal Reserve Board for federal funds sold. Interest income on this portfolio decreased by approximately $630 thousand from $4.2 million in 1999 to $3.6 million in 2000. The decrease in the average balance of federal funds sold is directly related to the decrease in the average balance of deposits (discussed later in this Management's Discussion and Analysis). Funding Opportunities TrustCo utilizes various funding sources to support its earning asset portfolio. The vast majority of the Company's funding comes from traditional deposit vehicles such as savings, interest-bearing checking and time deposit accounts. Total interest-bearing deposits (which includes interest bearing checking, money market accounts, savings, and certificates of deposit) decreased to $1.83 billion during 2000, and the average rate paid decreased to 3.53% for 2000 from 3.75% for 1999. Total interest expense on these deposits decreased $1.7 million to $16.1 million. Short-term borrowings, primarily the Trustco Short-Term Investment Account, increased by $2.1 million between the first quarter of 1999 and 2000. Total interest expense on this account increased by $300 thousand in 2000, and the average rate paid increased 71 basis points to 4.71%. Demand deposit balances increased by 8.1% during the period from the first quarter of 1999 to the first quarter of 2000. The average balance was $148.0 million in 1999, and $160.1 million in 2000. During 1999 and continuing into 2000, TrustCo has reduced the rate paid on all funding sources from 3.77% for the first quarter of 1999 to 3.62% for the first 11 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 quarter of 2000. These reductions in interest rates were a result of a general fall in interest rates in the market place between those two dates. In addition, the decreases in interest bearing time deposits were the result of actions taken during 1999 to reduce the level of high cost certificates of deposit that had accumulated in TrustCo. The average balance of other time deposits decreased by $83.6 million between the first quarter of 1999 and 2000. To accomplish the objective of reducing the level of high cost deposits, interest rates on these products were decreased significantly as the identified deposit accounts matured. As a result of executing this strategy the average cost of other time deposits decreased from 5.28% in 1999 to 4.97% in 2000. Net Interest Income Taxable equivalent net interest income increased to $25.5 million in 2000. The net interest spread also increased 51 basis points between 1999 and 2000 and the net interest margin increased by 53 basis points. Nonperforming Assets Nonperforming assets include nonperforming loans which are those loans in a nonaccrual status, loans that have been restructured, and loans past due 90 days or more and still accruing interest. Also included in the total of nonperforming assets are foreclosed real estate properties which are categorized as real estate owned. Impaired loans are considered to be those commercial and commercial real estate loans in a nonaccrual status, and loans restructured since January 1, 1995, when the accounting standards required the identification, measurement and reporting of impaired loans. The following will describe the nonperforming assets of TrustCo as of March 31, 2000. Nonperforming loans: Total nonperforming loans were $10.1 million at March 31, 2000, a decrease from the $ 12.1 million of nonperforming loans at March 31, 1999. Nonaccrual loans were $4.4 million at March 31, 2000 down from the $7.8 million at March 31, 1999. Restructured loans were $5.6 million at March 31, 2000 compared to $3.9 million at March 31, 1999. All of the $10.1 million of nonperforming loans at March 31, 2000 are residential real estate or retail consumer loans. In prior years the vast majority of nonperforming loans were concentrated in the commercial and commercial real estate portfolios. There has been a dramatic shifting of nonperforming loans to the residential real estate and retail consumer loan portfolio for several factors, including: - The overall emphasis within TrustCo for residential real estate originations, - The relatively weak economic environment in the upstate New York territory, and - The reduction in real estate values in TrustCo's market area that has occurred since the middle of the 1990's, thereby causing a reduction in the collateral that supports the real estate loans. Consumer defaults and bankruptcies have increased dramatically over the 12 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 last several years and this has lead to an increase in defaults on loans. TrustCo strives to identify borrowers that are experiencing financial difficulties and to work aggressively with them so as to minimize losses or exposures. Total impaired loans at March 31 2000 of $5.4 million, consisted of restructured retail loans. During the first quarter of 2000, there have been $433 thousand of commercial loan charge offs, $149 thousand of consumer loan charge offs and $976 thousand of mortgage loan charge offs as compared with $150 thousand of commercial loan charge offs, $170 thousand of consumer loan charge offs and $2.0 million of mortgage loan charge offs in the first quarter of 1999. Recoveries during the quarter have been $565 thousand in 2000 and $1.2 million in 1999. Real estate owned: Total real estate owned of $1.6 million at March 31, 2000 decreased by $1.4 million since March 31, 1999. Allowance for loan losses: The balance of the allowance for loan losses is maintained at a level that is, in management's judgment, representative of the amount of the risk inherent in the loan portfolio. At March 31, 2000, the allowance for loan losses was $55.7 million, which represents a slight decrease from the $55.8 million in the allowance at December 31, 1999. The allowance represents 4.11% of the loan portfolio as of March 31, 2000 compared to 4.16% at March 31, 1999. The provision charged to expense was $850 thousand compared to $1.5 million for 1999. In deciding on the adequacy of the allowance for loan losses, management reviews the current nonperforming loan portfolio as well as loans that are past due and not yet categorized as nonperforming for reporting purposes. Also, there are a number of other factors that are taken into consideration, including: - The magnitude and nature of the recent loan charge offs and the movement of charge offs to the residential real estate loan portfolio, - The growth in the loan portfolio and the implication that has in relation to the economic climate in the bank's business territory, - Changes in underwriting standards in the competitive environment that TrustCo operates in, - Significant growth in the level of losses associated with bankruptcies and the time period needed to foreclose, secure and dispose of collateral, and - The relatively weak economic environment in the upstate New York territory combined with declining real estate prices. Consumer bankruptcies and defaults in general have risen significantly during the 1990's. This trend appears to be continuing as a result of economic strife 13 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 and the relative ease of access by consumers to additional credit. Job growth in the upstate New York area has been modest to declining and there continues to be a shifting of higher paying jobs in manufacturing and government to lower paying service jobs. In light of these trends, management believes the allowance for loan losses is reasonable in relation to the risk that is present in its current loan portfolio. Liquidity and Interest Rate Sensitivity TrustCo seeks to obtain favorable sources of funding and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's earnings performance and strong capital position enable the Company to raise funds easily in the marketplace and to secure new sources of funding. The Company actively manages its liquidity through target ratios established under its liquidity policies. Continual monitoring of both historical and prospective ratios allows TrustCo to employ strategies necessary to maintain adequate liquidity. Management has also defined various degrees of adverse liquidity situations, which could potentially occur, and has prepared appropriate contingency plans should such a situation arise. Noninterest Income Total noninterest income for the first quarter was $3.8 million, compared to $5.4 million in 1999. Included in both the 2000 and 1999 first quarter results are net losses on securities transactions of $1.0 million in 2000, and $420 thousand in 1999. Once these securities transactions are removed, total noninterest income decreased from $5.8 million in 1999 to $4.9 million in 2000. During the first quarter of 1999, the Company sold a banking building and realized a gain of $1.2 million, which is included in other noninterest income for the quarter. Noninterest Expenses Total noninterest expense was $11.9 million for 2000 compared to $12.2 million in 1999. The Company's efficiency ratio was 38.31% in 2000 and 41.31% in 1999. During the first quarter of 1999, equipment expense had increased by $550 thousand as a result of additional depreciation on computer equipment purchased for Year 2000 project. During the first quarter of 2000, equipment expense decresed by $580 thousand, mostly as the result of lower depreciation expense. Income Taxes In the first quarter of 2000 TrustCo recognized income tax expense of $5.2 million, compared to $4.8 million in 1999. The effective tax rate for 2000 was 33.6% and was 34.0% for 1999. Capital Resources Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios. New issues of equity securities have not been required since traditionally, most of its capital requirements are met through capital retention. 14 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 Total shareholders' equity at March 31, 2000 was $170.5 million, an increase from the $166.4 million at year-end 1999. The change in shareholders' equity between year end and the first quarter 2000 reflects a $2.7 million increase in the net unrealized gain on securities available for sale, and a $1.4 million increase in treasury stock during the first quarter of 2000 offset by $2.3 million of net earnings retained by the Company and a $577 thousand increase in capital and surplus resulting from stock options exercised TrustCo declared dividends of $0.150 in 2000, compared with $0.138 in 1999. These results represent a dividend payout ratio of 78.07% in 2000 and 79.42% in 1999. The Company achieved the following ratios as of March 31, 2000 and 1999: March 31, Minimum Regulatory 2000 1999 Guidelines -------------------------------------------- Tier 1 risk adjusted capital 13.66% 13.14 4.00 Total risk adjusted capital 14.95 14.43 8.00 In addition, at March 31, 2000 and 1999, the consolidated equity to total assets ratio (excluding the mark to market effect of securities available for sale) was 7.24% and 6.98%, respectively. Year 2000 Update Management believes that all necessary precautions have been taken with respect to year 2000 readiness. To date, no significant problems have occurred, and management believes that no additional remediation will be necessary. 15
TrustCo Bank Corp NY Management's Discussion and Analysis STATISTICAL DISCLOSURE I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following table summarizes the component distribution of average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing libilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Non- accrual loans are included in loans for this analysis. The average balances of sec- urities available for sale is calculated using amortized costs for these securities. Included in the balance of shareholders' equity is unrealized depreciation of $4.9 million, net of tax, in the available for sale portfolio in 2000 and unrealized appreciation of $18.2 million, net of tax, in 1999. The subtotals contained in the following table are the arithmetic totals of the items in that category. First Quarter First Quarter 2000 1999 ______________________________ _______________________________ ____________________________ Average Average Average Average Change in Variance Variance (dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate Income/ Change Change Assets Expense Commercial loans......................$ 193,417 $ 4,272 8.84%$ 185,039 $ 4,146 8.99% 126 487 (361) Residential mortgage loans............. 1,000,667 19,535 7.81% 963,790 18,920 7.85% 615 1,267 (652) Home equity lines of credit ........... 137,707 2,953 8.60% 145,809 2,783 7.74% 170 (780) 950 Installment loans...................... 21,381 718 13.47% 24,372 764 12.71% (46) (280) 234 --------- ------ --------- ------ ----- ----- ----- Loans, net of unearned income.......... 1,353,172 27,478 8.13% 1,319,010 26,613 8.09% 865 694 171 Securities available for sale: U.S. Treasuries and agencies.......... 213,034 3,933 7.38% 160,025 2,963 7.41% 970 1,031 (61) Mortgage-backed securities............ 212,541 3,753 7.06% 248,932 4,079 6.55% (326) (1,868) 1,542 States and political subdivisions..... 138,277 2,770 8.01% 131,705 2,611 7.93% 159 131 28 Other ................................ 103,952 1,715 6.60% 137,651 2,123 6.18% (408) (1,230) 822 --------- ------ --------- ------ ----- ----- ----- Total securities available for sale. 667,804 12,171 7.29% 678,313 11,776 6.95% 395 (1,936) 2,331 Federal funds sold..................... 250,659 3,587 5.76% 357,911 4,216 4.78% (629) (4,531) 3,902 Other short-term investments........... 3,025 45 5.96% 1,666 21 5.16% 24 20 4 --------- ------ --------- ------ ----- ----- ----- Total Interest earning assets........ 2,274,660 43,281 7.62% 2,356,900 42,626 7.26% 655 (5,753) 6,408 Allowance for loan losses.............. (56,480) ------ (56,275) ------ ----- ----- ----- Cash and noninterest earning assets.... 129,027 142,232 --------- --------- Total assets........................$ 2,347,207 $ 2,442,857 ========= ========= Liabilities and shareholders' equity Deposits: Interest bearing checking..........$ 269,975 715 1.07%$ 258,415 $ 676 1.06% 39 36 3 Money market accounts............... 59,052 401 2.73% 59,302 399 2.73% 2 2 --- Savings............................... 638,868 4,294 2.70% 659,406 4,397 2.70% (103) (103) --- Other time deposits................... 861,702 10,645 4.97% 945,305 12,319 5.28% (1,674) (998) (676) --------- ------ --------- ------ ----- ----- ----- Total time deposits.................. 1,829,597 16,055 3.53% 1,922,428 17,791 3.75% (1,736) (1,063) (673) Short-term borrowings.................. 149,042 1,746 4.71% 146,902 1,448 4.00% 298 23 275 --------- ------ --------- ------ ----- ----- ----- Total interest bearing liabilities... 1,978,639 17,801 3.62% 2,069,330 19,239 3.77% (1,438) (1,040) (398) Demand deposits........................ 160,051 ------ 148,018 ------ ----- ----- ----- Other liabilities...................... 43,040 38,946 Shareholders' equity................... 165,477 186,563 --------- --------- Total liab. & shareholders' equity..$ 2,347,207 $ 2,442,857 ========= ========= Net interest income.................... 25,480 23,387 2,093 (4,713) 6,806 ------- ------- ----- ----- ----- Net interest spread.................... 4.00% 3.49% Net interest margin (net interest income to total interest earning assets)............................. 4.47% 3.94% Tax equivalent adjustment 1,037 960 ------- -------- Net interest income per book........ $ 24,443 $ 22,427 ======= ========
-16- TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the Company's interest rate risk position since December 31, 1999. Other types of market risk, such as foreign exchange rate risk and commodity price risk do not arise in the normal course of the Company's business activities. 17 TrustCo Bank Corp NY Management's Discussion and Analysis - continued March 31, 2000 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TrustCo Bank Corp NY Date: May 8, 2000 By: /s/ Robert A. McCormick ----------------------------- Robert A. McCormick President and Chief Executive Officer Date: May 8, 2000 By:/s/ Robert T. Cushing ----------------------------- Robert T. Cushing Vice President and Chief Financial Officer 18 EX-27 2 ARTICLE 9 FDS FOR 10-K
9 This schedule contains summary financial information extracted from the accompanying financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 3-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 MAR-31-2000 MAR-31-1999 34,995 37,341 313 892 258,000 364,000 0 0 661,376 681,160 0 0 0 0 1,354,490 1,318,188 55,666 54,772 2,353,653 2,434,163 1,991,058 2,060,558 145,034 144,350 47,017 44,038 0 0 0 0 0 0 56,539 28,163 114,005 157,054 2,353,653 2,434,163 27,432 26,560 11,225 10,890 3,587 4,216 42,244 41,666 16,055 17,791 17,801 19,239 24,443 22,427 850 1,513 (1,049) (420) 11,922 12,202 15,473 14,132 10,270 9,323 0 0 0 0 10,270 9,323 0.192 0.173 0.186 0.167 4.47 3.94 4,437 7,801 66 401 5,626 3,905 0 0 55,820 54,375 1,568 2,282 564 1,166 55,666 54,772 0 0 0 0 55,666 54,772 EPS primary and EPS diluted have been restated to reflect a two-for-one stock split in November 1999. The March 31, 1999 Financial Data Schedule has been restated.
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