Florida: (dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | Commercial real estate | | | - | | | $ | - | | | | - | | | $ | - | | Real estate mortgage - 1 to 4 family: | | | | | | | | | | | | | | | | | First mortgages | | | - | | | $ | - | | | | - | | | $ | - | | Home equity lines of credit | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | Total | | | - | | | $ | - | | | | - | | | $ | - | |
| | Nine months ended 9/30/2017 | | | Nine months ended 9/30/2016 | | New York and other states*: (dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage - 1 to 4 family: | | | | | | | | | | | | | First mortgages | | | 2 | | | $ | 236 | | | | 1 | | | $ | 107 | | Home equity loans | | | - | | | | - | | | | - | | | | - | | Home equity lines of credit | | | 1 | | | | 3 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | Total | | | 3 | | | $ | 239 | | | | 1 | | | $ | 107 | |
Florida:* Includes New York, New Jersey, Vermont and Massachusetts.
(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage - 1 to 4 family: | | | | | | | | | | | | | First mortgages | | | 1 | | | $ | 77 | | | | - | | | $ | - | | Home equity lines of credit | | | 1 | | | $ | 70 | | | | 1 | | | $ | 46 | | | | | | | | | | | | | | | | | | | Total | | | 2 | | | $ | 147 | | | | 1 | | | $ | 46 | |
The TDR’s that subsequently defaulted described above did not have a material impact on the allowance for loan losses.
Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators are excluded from evaluation of troubled debt restructurings (“TDR”) classification and will continue to be reported as current during the payment deferral period. The Company’s policy is to continue to accrue interest during the deferral period. Loans not meeting the CARES ACT or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures. Loan Modifications and payment deferrals made pursuant to COVID 19 as of June 30, 2020 totaled approximately $190 million, which included $45 million of commercial loans and $145 million of residential loans.
The Company categorizes non-homogenous loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. On at least an annual basis, the Company’s loan grading process analyzes non-homogeneous loans, such as commercial and commercial real estate loans, individually by grading the loans based on credit risk. The loan grades assigned to all loan types are tested by the Company’s internal loan review department in accordance with the Company’s internal loan review policy.
The Company uses the following definitions for classified loans:
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as such have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those loans classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. All doubtful loans are considered impaired.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be “pass” rated loans.
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
| | September 30, 2017 | | | June 30, 2020 | | New York and other states: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | New York and other states*: | | | | | | | | | | | (dollars in thousands) | | | | | | | | | | | Pass | | | Classified | | | Total | | | | Pass | | | Classified | | | Total | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | | | | Commercial real estate | | $ | 142,390 | | | | 9,838 | | | | 152,228 | | | $ | 149,429 | | | | 4,594 | | | | 154,023 | | Other | | | 20,154 | | | | 1,600 | | | | 21,754 | | | | 59,147 | | | | 488 | | | | 59,635 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 162,544 | | | | 11,438 | | | | 173,982 | | | $ | 208,576 | | | | 5,082 | | | | 213,658 | |
Florida: | | | | | | | | | | (dollars in thousands) | | Pass | | | Classified | | | Total | | | | | | | | | | | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 17,189 | | | | - | | | | 17,189 | | Other | | | 365 | | | | - | | | | 365 | | | | | | | | | | | | | | | | | $ | 17,554 | | | | - | | | | 17,554 | |
Total: | | | | | | | | | | (dollars in thousands) | | Pass | | | Classified | | | Total | | | | | | | | | | | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 166,618 | | | | 4,594 | | | | 171,212 | | Other | | | 59,512 | | | | 488 | | | | 60,000 | | | | | | | | | | | | | | | | | $ | 226,130 | | | | 5,082 | | | | 231,212 | |
Florida:* Includes New York, New Jersey and Massachusetts.
(dollars in thousands) | | | | | | | | | | | | Pass | | | Classified | | | Total | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 12,980 | | | | - | | | | 12,980 | | Other | | | 319 | | | | - | | | | 319 | | | | | | | | | | | | | | | | | $ | 13,299 | | | | - | | | | 13,299 | |
(dollars in thousands) | | | | | | | | | | | | Pass | | | Classified | | | Total | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 155,370 | | | | 9,838 | | | | 165,208 | | Other | | | 20,473 | | | | 1,600 | | | | 22,073 | | | | | | | | | | | | | | | | | $ | 175,843 | | | | 11,438 | | | | 187,281 | |
| | December 31, 2016 | | New York and other states: | | | | | | | | | | | | | | | | | | | | (dollars in thousands) | | | | | | | | | | | | Pass | | | Classified | | | Total | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 136,676 | | | | 14,690 | | | | 151,366 | | Other | | | 25,442 | | | | 2,097 | | | | 27,539 | | | | | | | | | | | | | | | | | $ | 162,118 | | | | 16,787 | | | | 178,905 | |
Florida: | | | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | | | | | | | | | | | | New York and other states*: | | | | | | | | | | | (dollars in thousands) | | | | | | | | | | | Pass | | | Classified | | | Total | | | | Pass | | | Classified | | | Total | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | | | | Commercial real estate | | $ | 12,243 | | | | - | | | | 12,243 | | | $ | 157,280 | | | | 4,906 | | | | 162,186 | | Other | | | 46 | | | | - | | | | 46 | | | | 18,384 | | | | 942 | | | | 19,326 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,289 | | | | - | | | | 12,289 | | | $ | 175,664 | | | | 5,848 | | | | 181,512 | |
Florida: | | | | | | | | | | (dollars in thousands) | | Pass | | | Classified | | | Total | | | | | | | | | | | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 17,752 | | | | - | | | | 17,752 | | Other | | | 235 | | | | - | | | | 235 | | | | | | | | | | | | | | | | | $ | 17,987 | | | | - | | | | 17,987 | |
Total: | | | | | | | | | | (dollars in thousands) | | Pass | | | Classified | | | Total | | | | | | | | | | | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 175,032 | | | | 4,906 | | | | 179,938 | | Other | | | 18,619 | | | | 942 | | | | 19,561 | | | | | | | | | | | | | | | | | $ | 193,651 | | | | 5,848 | | | | 199,499 | |
Total:* Includes New York, New Jersey and Massachusetts.
(dollars in thousands) | | | | | | | | | | | | Pass | | | Classified | | | Total | | Commercial: | | | | | | | | | | Commercial real estate | | $ | 148,919 | | | | 14,690 | | | | 163,609 | | Other | | | 25,488 | | | | 2,097 | | | | 27,585 | | | | | | | | | | | | | | | | | $ | 174,407 | | | | 16,787 | | | | 191,194 | |
Included in classified loans in the above tables are non-accrualimpaired loans of $1.2 million$808 thousand and $1.8 million$816 thousand at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.
For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Company’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools as of SeptemberJune 30, 20172020 and December 31, 20162019 is included in the aging of the recorded investment of the past due loans table. In addition, the total nonperforming portion of these homogeneous loan pools as of SeptemberJune 30, 20172020 and December 31, 20162019 is presented in the non-accrual loans table.
(6) | Fair Value of Financial Instruments |
(6) Fair Value of Financial Instruments
FASB Topic 820,Fair Value Measurement (“Measurements ("ASC 820”820") defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values: Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the value that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value of assets and liabilities:
Securities Available for Sale: The fair value of securities available for sale is determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. This results in a Level 1 or Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and is included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. Also classified as available for sale securities, the fair value of equity securities is determined by quoted market prices and these are designated as Level 1. The Company does not have any securities that would be designated as Level 3.
Other Real Estate Owned: Assets acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. This results in a Level 3 classification of the inputs for determining fair value.
Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally have had a chargeoffcharge off through the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value. When obtained, non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Indications of value for both collateral-dependent impaired loans and other real estate owned are obtained from third party providers or the Company’s internal Appraisal Department. All indications of value are reviewed for reasonableness by a member of the Appraisal Department for the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value via comparison with independent data sources such as recent market data or industry-wide statistics. Assets and liabilities measured at fair value under ASC 820 on a recurring basis are summarized below:
| | Fair Value Measurements at September 30, 2017 Using: | | | | | | | | | | | | | | | | | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | | | | | | (dollars in thousands) | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | U.S. government sponsored enterprises | | $ | 123,658 | | | $ | - | | | $ | 123,658 | | | $ | - | | State and political subdivisions | | | 533 | | | | - | | | | 533 | | | | - | | Corporate bonds | | | 40,381 | | | | - | | | | 40,381 | | | | - | | Mortgage backed securities and collateralized mortgage obligations - residential | | | 335,531 | | | | - | | | | 335,531 | | | | - | | Small Business Administration- guaranteed participation securities | | | 69,818 | | | | - | | | | 69,818 | | | | - | | Mortgage backed securities and collateralized mortgage obligations - commercial | | | 9,824 | | | | - | | | | 9,824 | | | | - | | Other securities | | | 685 | | | | 35 | | | | 650 | | | | - | | Total securities available for sale | | $ | 580,430 | | | $ | 35 | | | $ | 580,395 | | | $ | - | |
| | | | | | Fair Value Measurements at December 31, 2016 Using: | | | | | | | | | | | | | | | | | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | | | | | | (dollars in thousands) | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | U.S. government sponsored enterprises | | $ | 117,266 | | | $ | - | | | $ | 117,266 | | | $ | - | | State and political subdivisions | | | 886 | | | | - | | | | 886 | | | | - | | Mortgage backed securities and collateralized mortgage obligations - residential | | | 372,308 | | | | - | | | | 372,308 | | | | - | | Corporate bonds | | | 40,705 | | | | - | | | | 40,705 | | | | - | | Small Business Administration- guaranteed participation securities | | | 78,499 | | | | - | | | | 78,499 | | | | - | | Mortgage backed securities and collateralized mortgage obligations - commercial | | | 10,011 | | | | - | | | | 10,011 | | | | - | | Other securities | | | 685 | | | | 35 | | | | 650 | | | | - | | Total securities available for sale | | $ | 620,360 | | | $ | 35 | | | $ | 620,325 | | | $ | - | |
There were no0 transfers between Level 1 and Level 2 during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016.2019.
| | Fair Value Measurements at | | | | June 30, 2020 Using: | | (dollars in thousands) | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | | | | | | | | | | | | State and political subdivisions | | | 120 | | | $ | - | | | $ | 120 | | | $ | - | | Mortgage backed securities and collateralized mortgage obligations - residential | | | 331,469 | | | | - | | | | 331,469 | | | | - | | Corporate bonds | | | 54,430 | | | | - | | | | 54,430 | | | | - | | Small Business Administration- guaranteed participation securities | | | 45,998 | | | | - | | | | 45,998 | | | | - | | Other securities | | | 685 | | | | - | | | | 685 | | | | - | | | | | | | | | | | | | | | | | | | Total securities available for sale | | $ | 432,702 | | | $ | - | | | $ | 432,702 | | | $ | - | |
| | Fair Value Measurements at | | | | December 31, 2019 Using: | | (dollars in thousands) | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | U.S. government sponsored enterprises | | $ | 104,512 | | | $ | - | | | $ | 104,512 | | | $ | - | | State and political subdivisions | | | 162 | | | | - | | | | 162 | | | | - | | Mortgage backed securities and collateralized mortgage obligations - residential | | | 389,517 | | | | - | | | | 389,517 | | | | - | | Corporate bonds | | | 30,436 | | | | - | | | | 30,436 | | | | - | | Small Business Administration- guaranteed participation securities | | | 48,511 | | | | - | | | | 48,511 | | | | - | | Other securities | | | 685 | | | | - | | | | 685 | | | | - | | | | | | | | | | | | | | | | | | | Total securities available for sale | | $ | 573,823 | | | $ | - | | | $ | 573,823 | | | $ | - | |
Assets measured at fair value on a non-recurring basis are summarized below:
| | Fair Value Measurements at September 30, 2017 Using: | | | | | | | | | Fair Value Measurements at | | | | | | | | | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | | | | | | Valuation technique | | Unobservable inputs | | Range (Weighted Average) | | | June 30, 2020 Using: | | | | | | (dollars in thousands) | | | | | | | | | | | | | | | | | | | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Valuation technique | Unobservable inputs | | Range (Weighted Average) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other real estate owned | | $ | 2,879 | | | $ | - | | | $ | - | | | $ | 2,879 | | Sales comparison approach | | Adjustments for differences between comparable sales | | | 2% - 10% (4%) | | | $ | 830 | | | $ | - | | | $ | - | | | $ | 830 | | Sales comparison approach | Adjustments for differences between comparable sales | | | 1% - 9% (3 | %) | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage - 1 to 4 family | | | 651 | | | | - | | | | - | | | | 651 | | Sales comparison approach | | Adjustments for differences between comparable sales | | | 2% - 5% (4%) | | | Real estate mortgage -1 to 4 family | | | | 297 | | | | - | | | | - | | | | 297 | | Sales comparison approach | Adjustments for differences between comparable sales | | | 1% - 11% (11 | %) |
| | | | | | | | | | | | | Fair Value Measurements at December 31, 2016 Using: | | | | | | | | | Fair Value Measurements at | | | | | | | | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | | | | | | Valuation technique | | Unobservable inputs | | Range (Weighted Average) | | | December 31, 2019 Using: | | | | | | (dollars in thousands) | | | | | | | | | | | | | | | | | | | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Valuation technique | Unobservable inputs | | Range (Weighted Average) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other real estate owned | | $ | 4,268 | | | $ | - | | | $ | - | | | $ | 4,268 | | Sales comparison approach | | Adjustments for differences between comparable sales | | | 1% - 14% (7%) | | | $ | 1,579 | | | $ | - | | | $ | - | | | $ | 1,579 | | Sales comparison approach | Adjustments for differences between comparable sales | | | 1% - 21% (7 | %) | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 1,250 | | | | - | | | | - | | | | 1,250 | | Sales comparison approach | | Adjustments for differences between comparable sales | | | 7% - 35% (23%) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage - 1 to 4 family | | | 458 | | | | - | | | | - | | | | 458 | | Sales comparison approach | | Adjustments for differences between comparable sales | | | 5% - 14% (10%) | | | Real estate mortgage -1 to 4 family | | | | 120 | | | | - | | | | - | | | | 120 | | Sales comparison approach | Adjustments for differences between comparable sales | | | 1% - 17% (9 | %) |
Other real estate owned, that is carried at fair value less costs to sell was approximately $2.9 million$830 thousand at SeptemberJune 30, 20172020 and consisted of $358 thousand of commercial real estate and $2.5approximately $472 million of residential real estate properties. Valuation charges of $461$23 thousand and $823$103 thousand are included in earnings for the three and ninesix months ended SeptemberJune 30, 2017, respectively.2020, respectively .
Of the total impaired loans of $24.6$20.4 million at SeptemberJune 30, 2017, $6512020, $297 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at SeptemberJune 30, 2017.2020. Gross charge offs related to residential impaired loans included in the table above were $15$77 thousand and $41 thousand for the three and ninesix months ended September June 30, 2017, respectively.2020, there were 0 gross charge offs related to residential impaired loans for the three months ended June 30,2020.
Other real estate owned, that is carried at fair value less costs to sell, was approximately $4.3$1.6 million at December 31, 20162019 and consisted of $756$358 thousand of commercial real estate and $3.5$1.2 million of residential real estate properties. A valuation charge of $1.2 million$366 thousand is included in earnings for the year ended December 31, 2016.2019.
Of the total impaired loans of $24.0$21.0 million at December 31, 2016, $1.7 million2019, $120 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2016.2019. Gross charge offs related to commercial impaired loans included in the table above were $482 thousand for the year ended December 31, 2016, while gross charge offs related to residential impaired loans included in the table above amounted to $226$22 thousand.
In accordance with FASB Topic 825, Financial Instruments (“ASC 825”), thethe carrying amounts and estimated fair values of financial instruments, at SeptemberJune 30, 20172020 and December 31, 20162019 are as follows:follows:
(dollars in thousands) | | Carrying | | | Fair Value Measurements at September 30, 2017 Using: | | | | | | Fair Value Measurements at | | | | | Carrying | | | June 30, 2020 Using: | | | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 624,197 | | | | 624,197 | | | | - | | | | - | | | | 624,197 | | | $ | 952,836 | | | | 952,836 | | | | - | | | | - | | | | 952,836 | | Securities available for sale | | | 580,430 | | | | 35 | | | | 580,395 | | | | - | | | | 580,430 | | | | 432,702 | | | | - | | | | 432,702 | | | | - | | | | 432,702 | | Held to maturity securities | | | 29,268 | | | | - | | | | 30,731 | | | | - | | | | 30,731 | | | | 16,633 | | | | - | | | | 17,878 | | | | - | | | | 17,878 | | Federal Reserve Bank and Federal | | | | | | | | | | | | | | | | | | | | | | Home Loan Bank stock | | | 8,779 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | Federal Home Loan Bank stock | | | | 5,506 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | Net loans | | | 3,534,200 | | | | - | | | | - | | | | 3,541,135 | | | | 3,541,135 | | | | 4,129,417 | | | | - | | | | - | | | | 4,218,824 | | | | 4,218,824 | | Accrued interest receivable | | | 10,813 | | | | 56 | | | | 2,473 | | | | 8,284 | | | | 10,813 | | | | 11,648 | | | | 31 | | | | 1,573 | | | | 10,044 | | | | 11,648 | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 397,623 | | | | 397,623 | | | | - | | | | - | | | | 397,623 | | | | 612,960 | | | | 612,960 | | | | - | | | | - | | | | 612,960 | | Interest bearing deposits | | | 3,767,739 | | | | 2,691,853 | | | | 1,069,906 | | | | - | | | | 3,761,759 | | | | 4,252,347 | | | | 2,859,578 | | | | 1,399,062 | | | | - | | | | 4,258,640 | | Short-term borrowings | | | 216,508 | | | | - | | | | 216,508 | | | | - | | | | 216,508 | | | | 177,278 | | | | - | | | | 177,278 | | | | - | | | | 177,278 | | Accrued interest payable | | | 470 | | | | 67 | | | | 402 | | | | - | | | | 470 | | | | 1,027 | | | | 108 | | | | 919 | | | | - | | | | 1,027 | |
(dollars in thousands) | | Carrying | | | Fair Value Measurements at December 31, 2016 Using: | | | | | | Fair Value Measurements at | | | | | Carrying | | | December 31, 2019 Using: | | | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 707,274 | | | | 707,274 | | | | - | | | | - | | | | 707,274 | | | $ | 456,846 | | | | 456,846 | | | | - | | | | - | | | | 456,846 | | Securities available for sale | | | 620,360 | | | | 35 | | | | 620,325 | | | | - | | | | 620,360 | | | | 573,823 | | | | - | | | | 573,823 | | | | - | | | | 573,823 | | Held to maturity securities | | | 45,490 | | | | - | | | | 47,526 | | | | - | | | | 47,526 | | | | 18,618 | | | | - | | | | 19,680 | | | | - | | | | 19,680 | | Federal Reserve Bank and Federal | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Home Loan Bank stock | | | 9,579 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | 9,183 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | Net loans | | | 3,386,696 | | | | - | | | | - | | | | 3,370,976 | | | | 3,370,976 | | | | 4,017,879 | | | | - | | | | - | | | | 4,078,210 | | | | 4,078,210 | | Accrued interest receivable | | | 11,070 | | | | 145 | | | | 2,654 | | | | 8,271 | | | | 11,070 | | | | 10,915 | | | | 216 | | | | 2,221 | | | | 8,478 | | | | 10,915 | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 377,755 | | | | 377,755 | | | | - | | | | - | | | | 377,755 | | | | 463,858 | | | | 463,858 | | | | - | | | | - | | | | 463,858 | | Interest bearing deposits | | | 3,818,408 | | | | 2,658,945 | | | | 1,156,025 | | | | - | | | | 3,814,970 | | | | 3,986,158 | | | | 2,587,981 | | | | 1,397,271 | | | | - | | | | 3,985,252 | | Short-term borrowings | | | 209,406 | | | | - | | | | 209,406 | | | | - | | | | 209,406 | | | | 148,666 | | | | - | | | | 148,666 | | | | - | | | | 148,666 | | Accrued interest payable | | | 526 | | | | 82 | | | | 444 | | | | - | | | | 526 | | | | 1,459 | | | | 174 | | | | 1,285 | | | | - | | | | 1,459 | |
The specific estimation methods and assumptions used can have a substantial impact on the resulting fair values of financial instruments. The following is a brief summary of the significant methods and assumptions used in estimating fair values:
Cash and Cash Equivalents
The carrying values of these financial instruments approximate fair values and are classified as Level 1.
Federal Reserve Bank and Federal Home Loan Bank stock
It is not practical to determine the fair value of Federal Reserve Bank and Federal Home Loan Bank stock due to their restrictive nature.
Securities Held to Maturity
Similar to securities available for sale described previously, the fair value of securities held to maturity are determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. This results in a Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. The Company does not have any securities that would be designated as Level 3.
Loans
The fair values of all loans are estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
Deposit Liabilities
The fair values disclosed for noninterest bearing demand deposits, interest bearing checking accounts, savings accounts, and money market accounts are, by definition, equal to the amount payable on demand at the balance sheet date resulting in a Level 1 classification. The carrying value of all variable rate certificates of deposit approximates fair value resulting in a Level 2 classification. The fair value of fixed rate certificates of deposit is estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered on certificates of similar size and remaining maturity resulting in a Level 2 classification.
Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification consistent with the asset or liability that they are associated with.
Short-Term Borrowings and Other Financial Instruments
The fair value of all short-term borrowings, and other financial instruments approximates the carrying value resulting in a Level 2 classification.
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk. Such financial instruments consist of commitments to extend financing and standby letters of credit. If the commitments are exercised by the prospective borrowers, these financial instruments will become interest earning assets of the Company. If the commitments expire, the Company retains any fees paid by the prospective borrower. The fair value of commitments is estimated based upon fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the present creditworthiness of the borrower. For fixed rate commitments, the fair value estimation takes into consideration an interest rate risk factor. The fair value of these off-balance sheet items approximates the recorded amounts of the related fees, which are considered to be immaterial.
The Company does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as derivatives.
33(7) Accumulated Other Comprehensive Income (Loss)
(7) | Accumulated Other Comprehensive Income (Loss) |
The following is a summary of the accumulated other comprehensive (loss) income (loss) balances, net of tax:
| | Three months ended 9/30/17 | | (dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized holding gain (loss) on securities available for sale, net of tax | | $ | (4,049 | ) | | | 562 | | | | - | | | | 562 | | | | (3,487 | ) | Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax | | | 456 | | | | - | | | | (29 | ) | | | (29 | ) | | | 427 | | | | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income (loss), net of tax | | | (3,593 | ) | | | 562 | | | | (29 | ) | | | 533 | | | | (3,060 | ) |
| | Three months ended 6/30/2020 | | (dollars in thousands) | | Balance at 4/1/2020 | | | Other Comprehensive Income (loss)- Before Reclassifications | | | Amount reclassified from Accumulated Other Comprehensive Income | | | Other Comprehensive Income (loss)- Three months ended 6/30/2020 | | | Balance at 6/30/2020 | | | | | | | | | | | | | | | | | | Net unrealized holding loss on securities available forsale, net of tax | | $ | 7,376 | | | | 685 | | | | - | | | | 685 | | | | 8,061 | | Net change in overfunded position in pension and postretirement plans arising during the year, net of tax | | | 4,840 | | | | - | | | | - | | | | - | | | | 4,840 | | Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax | | | (824 | ) | | | - | | | | (141 | ) | | | (141 | ) | | | (965 | ) | Accumulated other comprehensive loss, net of tax | | $ | 11,392 | | | | 685 | | | | (141 | ) | | | 544 | | | | 11,936 | |
| | Three months ended 9/30/2016 | | | Three months ended 6/30/2019 | | (dollars in thousands) | | | | | | | | | | | | | | | | | Balance at 4/1/2019 | | | Other Comprehensive Income (loss)- Before Reclassifications | | | Amount reclassified from Accumulated Other Comprehensive Income | | | Other Comprehensive Income (loss)- Three months ended 6/30/2019 | | | Balance at 6/30/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized holding gain (loss) on securities available for sale, net of tax | | $ | 2,667 | | | | (75 | ) | | | - | | | | (75 | ) | | | 2,592 | | | Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax | | | (272 | ) | | | - | | | | 8 | | | | 8 | | | | (264 | ) | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized holding (gain) loss on securities available for sale, net of tax | | | $ | (7,020 | ) | | | 5,313 | | | | - | | | | 5,313 | | | | (1,707 | ) | Net change in overfunded position in pension and postretirement plans arising during the year, net of tax | | | | 423 | | | | - | | | | - | | | | - | | | | 423 | | Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax | | | | (414 | ) | | | (76 | ) | | | - | | | | (76 | ) | | | (490 | ) | Accumulated other comprehensive income (loss), net of tax | | | 2,395 | | | | (75 | ) | | | 8 | | | | (67 | ) | | | 2,328 | | | $ | (7,011 | ) | | | 5,237 | | | | - | | | | 5,237 | | | | (1,774 | ) |
| | Nine months ended 9/30/17 | | (dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized holding gain (loss) on securities available for sale, net of tax | | $ | (6,762 | ) | | | 3,275 | | | | - | | | | 3,275 | | | | (3,487 | ) | Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax | | | 511 | | | | - | | | | (84 | ) | | | (84 | ) | | | 427 | | | | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income (loss), net of tax | | | (6,251 | ) | | | 3,275 | | | | (84 | ) | | | 3,191 | | | | (3,060 | ) |
| | Six months ended 6/30/2020 | | (dollars in thousands) | | Balance at 1/1/2020 | | | Other Comprehensive Income (loss)- Before Reclassifications | | | Amount reclassified from Accumulated Other Comprehensive Income | | | Other Comprehensive Income (loss)- Three months ended 6/30/2020 | | | Balance at 6/30/2020 | | | | | | | | | | | | | | | | | | Net unrealized holding loss on securities available for sale, net of tax | | $ | 286 | | | | 8,630 | | | | (855 | ) | | | 7,775 | | | | 8,061 | | Net change in overfunded position in pension and postretirement plans arising during the year, net of tax | | | 4,840 | | | | - | | | | - | | | | - | | | | 4,840 | | Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax | | | (665 | ) | | | - | | | | (300 | ) | | | (300 | ) | | | (965 | ) | Accumulated other comprehensive loss, net of tax | | $ | 4,461 | | | | 8,630 | | | | (1,155 | ) | | | 7,475 | | | | 11,936 | |
| | Nine months ended 9/30/16 | | | Six months ended 6/30/2019 | | (dollars in thousands) | | | | | | | | | | | | | | | | | Balance at 1/1/2019 | | | Other Comprehensive Income (loss)- Before Reclassifications | | | Amount reclassified from Accumulated Other Comprehensive Income | | | Other Comprehensive Income (loss)- Three months ended 6/30/2019 | | | Balance at 6/30/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized holding gain (loss) on securities available for sale, net of tax | | $ | (4,492 | ) | | | 7,483 | | | | (401 | ) | | | 7,084 | | | | 2,592 | | | Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax | | | (289 | ) | | | - | | | | 25 | | | | 25 | | | | (264 | ) | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized holding (gain) loss on securities available for sale, net of tax | | | $ | (10,416 | ) | | | 8,709 | | | | - | | | | 8,709 | | | | (1,707 | ) | Net change in overfunded position in pension and postretirement plans arising during the year, net of tax | | | | 423 | | | | - | | | | - | | | | - | | | | 423 | | Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax | | | | (316 | ) | | | (174 | ) | | | - | | | | (174 | ) | | | (490 | ) | Accumulated other comprehensive income (loss), net of tax | | | (4,781 | ) | | | 7,483 | | | | (376 | ) | | | 7,109 | | | | 2,328 | | | $ | (10,309 | ) | | | 8,535 | | | | - | | | | 8,535 | | | | (1,774 | ) |
The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:
(dollars in thousands) | | Three months ended September 30, | | | Nine months ended September 30, | | | | Three months ended | | | Six months ended | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Affected Line Item in Statements | | June 30, | | | June 30, | | | | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Affected Line Item in Financial Statements | Net unrealized holding gain on securities available for sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Realized gain on securities transactions | | $ | - | | | | - | | | $ | - | | | | 668 | | Net gain on securities transactions | | $ | - | | | | - | | | $ | 1,155 | | | | - | | Net gain on securities transactions | Income tax effect | | | - | | | | - | | | | - | | | | (267 | ) | Income taxes | | | - | | | | - | | | | (300 | ) | | | - | | Income taxes | Net of tax | | | - | | | | - | | | | - | | | | 401 | | | | | - | | | | - | | | | 855 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of pension and postretirement benefit items | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of net actuarial gain | | | 72 | | | | 8 | | | | 208 | | | | 25 | | Salaries and employee benefits | | Amortization of pension and postretirement benefit items: | | | | | | | | | | | | | | | | | | | Amortization of net actuarial gain (loss) | | | $ | 143 | | | | 106 | | | $ | 309 | | | | 178 | | Salaries and employee benefits | Amortization of prior service cost | | | (23 | ) | | | (22 | ) | | | (68 | ) | | | (67 | ) | Salaries and employee benefits | | | 49 | | | | (22 | ) | | | 98 | | | | (45 | ) | Salaries and employee benefits | Income tax effect | | | (20 | ) | | | 6 | | | | (56 | ) | | | 17 | | Income taxes | | Income tax benefit | | | | (51 | ) | | | (22 | ) | | | (107 | ) | | | (35 | ) | Income taxes | Net of tax | | | 29 | | | | (8 | ) | | | 84 | | | | (25 | ) | | | | 141 | | | | 62 | | | | 300 | | | | 98 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total reclassifications, net of tax | | $ | 29 | | | | (8 | ) | | $ | 84 | | | | 376 | | | | $ | 141 | | | | 62 | | | $ | 1,155 | | | | 98 | | |
(8) Revenue from Contracts with Customers
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Company’s sources of Non-Interest Income for the three months and six months ended June 30, 2020 and 2019. Items outside the scope of ASC 606 are noted as such.
(dollars in thousands) | | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Non-interest income | | | | | | | | | | | | | Service Charges on Deposits | | | | | | | | | | | | | Overdraft fees | | $ | 452 | | | $ | 849 | | | $ | 1,325 | | | $ | 1,699 | | Other | | | 382 | | | | 109 | | | | 811 | | | | 219 | | Interchange Income | | | 931 | | | | 1,284 | | | | 1,877 | | | | 2,815 | | Net gain on securities transactions (a) | | | - | | | | - | | | | 1,155 | | | | - | | Wealth management fees | | | 1,368 | | | | 1,683 | | | | 2,968 | | | | 3,416 | | Other (a) | | | 293 | | | | 989 | | | | 624 | | | | 1,402 | | | | | | | | | | | | | | | | | | | Total non-interest income | | $ | 3,426 | | | $ | 4,914 | | | $ | 8,760 | | | $ | 9,551 | |
(a) Not within the scope of ASC 606.
A description of the Company’s revenue streams accounted in accordance with ASC 606 as follows:
Service charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
(8) | Agreement with the Office of the Comptroller of the Currency |
Interchange Income: Interchange revenue primarily consists of interchange fees, volume-related incentives and ATM charges. As the card-issuing bank, interchange fees represent our portion of discount fees paid by merchants for credit/debit card transactions processed through the interchange network. The levels and structure of interchange rates are set by the card processing companies and are based on cardholder purchase volumes. The Company earns interchange income as cardholder transactions occur and interchange fees are settled on a daily basis concurrent with the transaction processing services provided to the cardholder.
On July 21, 2015Wealth Management fees: Trustco Bank (the “Bank”),Financial Services provides a comprehensive suite of trust and wealth management products and services, including financial and estate planning, trustee and custodial services, investment management, corporate retirement plan recordkeeping and administration of which a fee is charged to manage assets for investment or transact on accounts. These fees are earned over time as the wholly owned subsidiaryCompany provides the contracted monthly or quarterly services and are generally assessed over the period in which services are performed based on a percentage of the fair value of assets under management or administration. Other services are based on a fixed fee for certain account types, or based on transaction activity and are recognized when services are rendered. Fees are withdrawn from the customer’s account balance.
Gains/Losses on Sales of Other real Estate Owned “OREO”: The Company entered intorecords a formal agreement (the “Agreement”) withgain or loss from the Comptrollersale of OREO when control of the Currencyproperty transfers to the buyer, which generally occurs at the time of an executed deed. When the company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the United States (the “OCC”).
The Agreement relates totransaction price is probable. Once these criteria are met, the findings ofOREO asset is derecognized and the OCC following an examination of the Bank. Since the completion of the examination and entry into the Agreement, the Bank believes it has been working diligently to address the findings of the examination and to develop and implement appropriate formal action plans.
The Agreement requires the Bank to take various actions, within prescribed time frames, with respect to certain areas of the Bank. These include, among others, (i) establishment of a committee of at least three Directors to monitor and coordinate the Bank’s response to the Agreement; (ii) adoption of compliance plans to respond to the Agreement with the assistance of an independent qualified consultant; (iii) evaluation and implementation of improvements in corporate governance with the assistance of an independent qualified consultant; (iv) evaluation and implementation of improvements in internal audit; (v) development of a strategic plan; (vi) development of a revised capital plan consistent with the strategic plan; (vii) development and implementation of improvements to the Bank’s loan review system; and (viii) such other necessary steps to address the issues and questions noted by the OCC in the Agreement.
(9) | New Accounting Pronouncements |
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” which implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09gain or loss on sale is that an entity should recognize revenue to depictrecorded upon the transfer of promised goodscontrol of the property to the buyer. In determining the gain or services to customers in an amount that reflectsloss on the consideration to whichsale, the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determineCompany adjusts the transaction price (iv)and related gain/ (loss) on sale if a significant financing component is present.
(9) Operating Leases
The Company adopted Topic 842 “Leases” effective January 1, 2019 and has applied the guidance to all operating leases within the scope of Topic 842 at that date. The company elected to adopt practical expedients, which among other things, does not require reassessment of lease classification.
The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s balance sheets.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine present value of operating lease liabilities. Additionally, the Company does allocate the transaction priceconsideration between lease and non-lease components. The Company’s lease terms may include options to extend when it is reasonably certain that the performance obligationsCompany will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. As of June 30, 2020 the Company did not have any leases with terms of twelve months or less.
As of June 30, 2020 the Company does not have leases that have not yet commenced. At June 30, 2020 lease expiration dates ranged from six months to 24.3 years and have a weighted average remaining lease term of 9.0 years. Certain leases provide for increases in future minimum annual rental payments as defined in the contractlease agreements. As mentioned above the leases generally also include variable lease components which include real estate taxes, insurance, and (v) recognize revenue when (or as)common area maintenance (“CAM”) charges in the entity satisfies a performance obligation. In July 2015, FASB deferredannual rental payments.
Other information related to leases was as follows:
(dollars in thousands) | | Three months ended June 30, | | | | 2020 | | | 2019 | | Operating lease cost | | $ | 1,932 | | | $ | 1,930 | | Variable lease cost | | | 675 | | | | 509 | | | | | | | | | | | Total Lease costs | | $ | 2,607 | | | $ | 2,439 | |
(dollars in thousands) | | Six months ended June 30, | | | | 2020 | | | 2019 | | Operating lease cost | | $ | 3,927 | | | $ | 3,821 | | Variable lease cost | | | 1,155 | | | | 975 | | | | | | | | | | | Total Lease costs | | $ | 5,082 | | | $ | 4,796 | |
(dollars in thousands) | | Six months ended June 30, | | | | 2020 | | | 2019 | | Supplemental cash flows information: | | | | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | Operating cash flows from operating leases | | $ | 4,010 | | | $ | 3,906 | | | | | | | | | | | Right-of-use assets obtained in exchange for lease obligations: | | | 287 | | | $ | 54,038 | | | | | | | | | | | Weighted average remaining lease term | | 9.0 years | | | 9.6 years | | Weighted average discount rate | | | 3.25 | % | | | 3.30 | % |
Future minimum lease payments under non-cancellable leases as of June 30, 2020 were as follows:
(dollars in thousands) | | | | | | Year ending December 31, | | | | 2020(a) | | $ | 4,032 | | 2021 | | | 8,062 | | 2022 | | | 7,561 | | 2023 | | | 7,256 | | 2024 | | | 7,128 | | Thereafter | | | 28,551 | | Total lease payments | | $ | 62,590 | | Less: Interest | | | 8,880 | | | | | | | Present value of lease liabilities | | $ | 53,710 | |
(a) Excluding the effective datesix months ended June 30, 2020.
Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
(dollars in thousands) | | | | | | Year ending December 31, | | | | 2019(a) | | $ | 3,933 | | 2020 | | | 7,820 | | 2021 | | | 7,818 | | 2022 | | | 7,300 | | 2023 | | | 6,978 | | Thereafter | | | 32,600 | | Total lease payments | | $ | 66,449 | | Less: Interest | | | 10,212 | | | | | | | Present value of lease liabilities | | $ | 56,237 | |
(a) Excluding the ASUsix months ended June 30, 2019.
(10) Regulatory Capital Requirements
Banks and bank holding companies are subject to regulatory capital requirements administered by one year which means ASU 2014-09 will befederal banking agencies. Capital adequacy regulations and, additionally for banks, the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2018. In addition,2015 with full compliance with all of the FASB has begunrequirements being phased in over a multi-year schedule, and became fully phased in on January 1, 2019. The capital rules include a capital conservation buffer that is designed to issue targeted updatesabsorb losses during periods of economic stress and to clarify specific implementation issuesrequire increased capital levels before capital distributions and certain other payments can be made. Failure to meet the full amount of ASU 2014-09. These updates include ASU No. 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10 - Identifying Performance Obligations and Licensing and ASU No. 2016-12 - Narrow-Scope Improvements and Practical Expedients. The Company isthe buffer will result in process of evaluating disclosure impact. Basedrestrictions on the Company’s preliminary evaluation,ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. The buffer was fully implemented at 2.5% as of January 1, 2019. As of June 30, 2020, the ASU does not have a material impact on the Company’s financial position or the results of operations. The Company is in process of evaluating disclosure impact.and Bank meet all capital adequacy requirements to which they are subject.
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which amended existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The ASU is not expected to significantly impact the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” which amended existing guidancePrompt corrective action regulations provide 5 classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to increase transparencyrepresent overall financial condition. If a bank is not classified as well capitalized, regulatory approval is required to accept brokered deposits. If a bank is undercapitalized, capital distributions are limited, as is asset growth and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date which will impact the financial positionexpansion, and capital ratios of the Company.restoration plans are required. The federal banking agencies are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution or its holding company. Such actions could have a direct material effect on an institution’s or its holding company’s financial statements. As of June 30, 2020 and December 31, 2016,2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.
The Bank and the Company has approximately $69.7 million in minimum lease payments for existing operating leasesreported the following capital ratios as of branch locations with varying expiration dates from 2017June 30, 2020 and after. The Company does not expect the ASU to have a material impact on the Company’s results of operations.December 31, 2019: (Bank Only) | | | | | | | | | | | | | | | | | | | | | Minimum for Capital Adequacy plus Capital Conservation | | | | As of June 30, 2020 | | | Well | | | (dollars in thousands) | | Amount | | | Ratio | | | Capitalized(1) | | | Buffer (1)(2) | | | | | | | | | | | | | | | Tier 1 leverage ratio | | $ | 527,145 | | | | 9.603 | % | | | 5.000 | % | | | 4.000 | % | Common equity tier 1 capital | | | 527,145 | | | | 18.320 | | | | 6.500 | | | | 7.000 | | Tier 1 risk-based capital | | | 527,145 | | | | 18.320 | | | | 8.000 | | | | 8.500 | | Total risk-based capital | | | 563,265 | | | | 19.576 | | | | 10.000 | | | | 10.500 | |
| | As of December 31, 2019 | | | Well | | | Minimum for Capital Adequacy plus Capital Conservation | | (dollars in thousands) | | Amount | | | Ratio | | | Capitalized(1) | | | Buffer (1)(2) | | | | | | | | | | | | | | | Tier 1 leverage ratio | | $ | 516,775 | | | | 9.940 | % | | | 5.000 | % | | | 4.000 | % | Common equity tier 1 capital | | | 516,775 | | | | 18.412 | | | | 6.500 | | | | 7.000 | | Tier 1 risk-based capital | | | 516,775 | | | | 18.412 | | | | 8.000 | | | | 8.500 | | Total risk-based capital | | | 551,975 | | | | 19.666 | | | | 10.000 | | | | 10.500 | |
(Consolidated) | | As of June 30, 2020 2019 | | | Minimum for Capital Adequacy plus Capital Conservation | | (dollars in thousands) | | Amount | | | Ratio | | | Buffer (1)(2) | | | | | | | | | | | | Tier 1 leverage ratio | | $ | 540,932 | | | | 9.852 | % | | | 4.000 | % | Common equity Tier 1 capital | | | 540,932 | | | | 18.794 | % | | | 7.000 | % | Tier 1 risk-based capital | | | 540,932 | | | | 18.794 | % | | | 8.500 | % | Total risk-based capital | | | 577,061 | | | | 20.050 | % | | | 10.500 | % |
| | As of December 31, 2019 | | | Minimum for Capital Adequacy plus Capital Conservation | | (dollars in thousands) | | Amount | | | Ratio | | | Buffer (1)(2) | | | | | | | | | | | | Tier 1 leverage ratio | | $ | 533,243 | | | | 10.254 | % | | | 4.000 | % | Common equity Tier 1 capital | | | 533,243 | | | | 18.988 | | | | 7.000 | | Tier 1 risk-based capital | | | 533,243 | | | | 18.988 | | | | 8.500 | | Total risk-based capital | | | 568,463 | | | | 20.242 | | | | 10.500 | |
(1) | Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized |
(2) | The June 30, 2020 and December 31, 2019 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent |
(11) New Accounting Pronouncements
In JuneSeptember 2016, the FASB released ASU No. 2016-13, “Financial Instruments –- Credit Losses” which amended existing guidance to replace current generally accepted accounting principles used to measure a reporting entity’s credit losses. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. These amendments are effective
As previously disclosed, the Company formed a cross-functional team to work through its implementation of the plan. The Company has selected the Discounted Cash Flow modeling method and is running parallel processes and is working to finalize assessment and documentation of processes, data and model validation testing, qualitative factors and forecast periods. The company has selected a third party software solution to assist in the application of the new standard. The Company has elected to delay its adoption of ASU 2016-13, as provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act) until the date on which the National Emergency concerning COVID-19 is terminated or December 31, 2020, whichever occurs first. Upon adoption of ASU 2016-13, the Company will recognize a one-time cumulative effect adjustment through retained earnings to increase its allowance for publiccredit loss and to increase its unfunded loan commitment liability as of January 1, 2020.
(12) Risks and Uncertainties
Beginning in March 2020, the Company experienced negative impacts to our business entitiesin the form of requests for annual periodsloan deferrals of principal and interim periods within those annual periods beginning after December 15, 2019. The ASU representsinterest due to the business disruption caused by COVID-19. In March 2020, the World Health Organization categorized COVID-19 as a significant departure from current GAAPpandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. At this time, it is difficult to quantify the impact COVID-19 will have on the rest of 2020. The Company is evaluatinghas evaluated the impact of the ASU on its consolidated financial statements. The Company has established a roadmap for implementationeffects of COVID-19 and is currently evaluating vendor solutionsdetermined that will assist in implementing required changes to loan loss estimation model.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350)” which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual,there were no material or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwillsystematic adverse impacts on the carrying amountCompany’s first and second quarter 2020 balance sheets and results of operations except for an increase in provision for loan losses and related allowance for loan losses.
On March 3, 2020, the Federal Reserve reduced the target federal funds rate by 50 basis points, followed by an additional reduction of 100 basis points on March 16, 2020. These reductions in interest rates and other effects of the reporting unit when measuringCOVID-19 pandemic may adversely affect the goodwill impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit withCompany’s financial condition and results of operations. As a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2result of the goodwill impairment test. Therefore,spread of COVID-19, economic uncertainties have arisen which are likely to continue to negatively impact net interest income, provision for loan losses, and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.
As of June 30, 2020, the same impairment assessment appliesCompany and Bank capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to all reporting units. An entity is requiredwithstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios, as well as the ability of the Company and the Bank to disclose the amount of goodwill allocated to each reporting unit with a zeropay dividends or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The ASU is not expected to significantly impact the Company’s consolidated financial statements.make other distributions, could be adversely impacted by further credit losses.
In March 2017,Loan modifications and payment deferrals as a result of COVID-19 that meet the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715)”. The amendments in this ASU require that an employer reportcriteria established under Section 4013 of the service cost component inCARES Act or under applicable interagency guidance of the same line item or itemsfederal banking regulators are excluded from evaluation of troubled debt restructurings (“TDR”) classification and will continue to be reported as other compensation costs arising from services rendered by the pertinent employeescurrent during the payment deferral period. The other components of net benefit cost as defined in paragraphs 715-30-35-4Company’s policy is to continue to accrue interest during the deferral period. Loans not meeting the CARES ACT or regulatory guidance are evaluated for TDR and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The ASU is not expected to significantly impactnon-accrual treatment under the Company’s consolidated financial statements.existing policies and procedures. Loan Modifications and payment deferrals made pursuant to COVID 19 as of June 30, 2020 totaled approximately $190 million, which included $45 million of commercial loans and $145 million of residential loans.
In March 2017, the FASB issued ASU No. 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20)”. The amendments inAt this ASU shorten the amortization period for certain callable debttime, we do not believe there exists any impairment to our goodwill, long-lived assets, right of use assets, held to maturity investment securities, held at a premium. Specifically, the amendments require the premium to be amortizedor available-for-sale investment securities due to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The CompanyCOVID-19 pandemic. It is evaluating the impact of ASU No. 2017-08 on its consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation – Scope of Modification Accounting (Topic 718)”. The amendments in this ASU clarifies the applicationuncertain whether prolonged effects of the guidanceCOVID-19 pandemic will result in Topic 718, Compensation – Stock Compensation, by providing guidance about which changes in terms or conditions of a share-based payment award require and entityfuture impairment charges related to apply modification accounting. An entity should account for the effects of a modification unless all the following are met: 1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; 3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this ASU. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The ASU is not expected to significantly impact the Company’s consolidated financial statements.aforementioned assets.
| | | Crowe Horwath LLP Independent Member Crowe Horwath InternationalGlobal |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheShareholders and the Board of Directors and Shareholders
of TrustCo Bank Corp NY Glenville, New York
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated statementsstatement of financial condition of TrustCo Bank Corp NY (the "Company") as of SeptemberJune 30, 2017,2020, and the related consolidated statements of income and comprehensive income for the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 20172020 and 2016June 30, 2019 and the related changes in shareholders’ equity and cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20172020 and 2016. These interimJune 30, 2019, and the related notes (collectively referred to as the "interim financial information or statements"). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements arereferred to above for them to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company’s management.America.
We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). ("PCAOB"), the consolidated statement of financial condition of the Company as of December 31, 2019, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2020, 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, 2019, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the PCAOB. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board,PCAOB, 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.
| /s/ Crowe LLP | | | New York, New York | | August 6, 2020 | |
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
/s/ Crowe Horwath LLP
New York, New York
November 7, 2017
Item 2. | Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations |
Forward-looking Statements Statements included in this report and in future filings by TrustCo Bank Corp NY (“TrustCo” or the “Company”) with the Securities and Exchange Commission, in TrustCo’s press releases, and in oral statements made with the approval of an authorized executive officer, whichincluding statements regarding the effect of the novel coronavirus disease (“COVID-19”) pandemic on our business, financial condition and results of operations and our continuing response to the COVID-19 pandemic, that 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. Forward-looking statements can be identified by the use of such words as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. Examples of forward-looking statements include, among others, statements TrustCo makes regarding its expectations for complying with the new regulatory capital rules, costs associated with the Formal Agreement that the Company’s subsidiary, Trustco Bank (or the “Bank”) has entered into with the Office of the Comptroller of the Currency (“OCC”), the Company’s ability to grow its balance sheet and the profitability of such growth, the ability of its loan products to continue to attract customers if long-term rates rise and the ability to secure new sources of liquidity should the need arise. TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.
In addition to factors described under Part II, Item 1A, Risk Factors, if any, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, the following important factors listed below, 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:statement. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic.
| · | TrustCo’s ability to continue to originate a significant volume of one- to- four family mortgage loans in its market areas and to otherwise maintain or increase its market share in the areas in which it operates; | As a result of the current pandemic related to COVID-19, TrustCo may experience a decline in the demand for products and services; an increase in loan delinquencies; problem assets and foreclosures; a decline in collateral value; a work stoppage, forced quarantine, or other interruption or the unavailability of key employees; an increase in the allowance for loan losses; a reduction in wealth management revenues; an increase in Federal Deposit Insurance Corporation premiums; a reduction in the value of the securities portfolio; and a decline in the net worth and liquidity of loan guarantors; | · | TrustCo’s ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income; | TrustCo’s ability to continue to originate a significant volume of one- to- four family mortgage loans in its market areas and to otherwise maintain or increase its market share in the areas in which it operates; | · | TrustCo’s ability to comply with the Formal Agreement entered into with Trustco Bank’s regulator, the OCC, and potential regulatory actions if TrustCo or Trustco Bank fails to comply; | TrustCo’s ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income; | · | restrictions or conditions imposed by TrustCo’s and Trustco Bank’s regulators on their operations that may make it more difficult to achieve TrustCo’s and Trustco Bank’s goals; | TrustCo’s ability to make accurate assumptions and judgments regarding the credit risks associated with its lending and investing activities, including changes in the level and direction of loan delinquencies and charge-offs, changes in property values, and changes in estimates of the adequacy of the allowance for loan and lease losses; | · | the future earnings and capital levels of TrustCo and Trustco Bank and the continued receipt of approvals from TrustCo’s and Trustco Bank’s primary federal banking regulators under regulatory rules and the Formal Agreement to distribute capital from Trustco Bank to TrustCo, which could affect the ability of TrustCo to pay dividends; | the effects of and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations; | · | the results of supervisory monitoring or examinations of Trustco Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our loss allowance or to take other actions that reduce capital or income; | restrictions or conditions imposed by TrustCo’s and Trustco Bank’s regulators on their operations that may make it more difficult to achieve TrustCo’s and Trustco Bank’s goals;
| · | TrustCo’s ability to make accurate assumptions and judgments regarding the credit risks associated with its lending and investing activities, including changes in the level and direction of loan delinquencies and chargeoffs, changes in property values, and changes in estimates of the adequacy of the allowance for loan losses; | the future earnings and capital levels of TrustCo and Trustco Bank and the continued non objection from TrustCo’s and Trustco Bank’s primary federal banking regulators under regulatory rules to distribute capital from Trustco Bank to TrustCo, which could affect the ability of TrustCo to pay dividends; | · | the effects of and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations; | the results of supervisory monitoring or examinations of Trustco Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our loss allowances or to take other actions that reduce capital or income; | · | adverse conditions in the securities markets that lead to impairment in the value of securities in TrustCo’s investment portfolio; |
| · | changes in law and policy accompanying the new presidential administration and uncertainty or speculation pending the enactment of such changes; | the perceived overall value of TrustCo’s products and services by users, including the features, pricing and quality compared to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for TrustCo’s products and services; | · | the perceived overall value of TrustCo’s products and services by users, including the features, pricing and quality compared to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for TrustCo’s products and services; | changes in consumer spending, borrowing and savings habits; | · | changes in consumer spending, borrowing and savings habits; | the effect of changes in financial services laws and regulations (including laws concerning taxation, banking and securities) and the impact of other governmental initiatives affecting the financial services industry, including regulatory capital requirements; | · | the effect of changes in financial services laws and regulations (including laws concerning taxation, banking and securities) and the impact of other governmental initiatives affecting the financial services industry, including new regulatory capital requirements that took effect beginning in 2016; | changes in management personnel; | · | changes in management personnel; | real estate and collateral values; | · | real estate and collateral values; | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, Financial Accounting Standards Board (“FASB”) or the Public Company Accounting Oversight Board; | · | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies Financial Accounting Standards Board (“FASB”) or the Public Company Accounting Oversight Board; | disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions; | · | disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions; | technological changes and electronic, cyber and physical security breaches; | · | technological changes and electronic, cyber and physical security breaches; | changes in local market areas and general business and economic trends; | · | changes in local market areasTrustCo’s success at managing the risks involved in the foregoing and managing its business; and general business and economic trends, as well as changes in consumer spending and saving habits; |
| · | TrustCo’s success at managing the risks involved in the foregoing and managing its business; and | other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2019 and in our Form 10-Q for the quarter ended March 31, 2020. | · | other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2016. |
You should not rely upon forward-looking statements as predictions of future events. Although TrustCo believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. 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 are the tables “Distribution"Distribution of Assets, Liabilities and Shareholders’Shareholders' Equity: Interest Rates and Interest Differential”Differential" which gives a detailed breakdown of TrustCo’sTrustCo's average interest earning assets and interest bearing liabilities for the threethree-month and nine six‑month periods ended SeptemberJune 30, 20172020 and 2016.2019.
Introduction The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the threethree-month and ninesix-month month periods ended SeptemberJune 30, 2017,2020, with comparisons to the corresponding period in 2016,2019, as applicable. Net interest margin is presented on a fully taxable equivalent basis in this discussion. The consolidated interim financial statements and related notes, as well as the 20162019 Annual Report to Shareholders on Form 10-K, which was filed with the SEC on March 3, 2017,February 28, 2020, should also 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’speriod's presentation.
COVID-19 Impact Beginning in March 2020, we experienced negative impacts to our business in the form of requests for loan deferrals of principal and interest due to the business disruption caused by COVID-19. In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. At this time, it is difficult to quantify the impact COVID-19 will have on the rest of 2020. The Company has evaluated the impact of the effects of COVID-19 and determined that there were no material or systematic adverse impacts on the Company’s first and second quarter 2020 balance sheets and results of operations except for an increase in the provision for loan losses as a result of the increased risk inherent in the loan portfolio resulting from the pandemic.
The following is a description of the impact the COVID-19 global pandemic is having our business:
Loan modifications
We began receiving requests from our borrowers for loan deferrals in March 2020. Modifications include the deferral of principal and/or interest payments for terms generally up to 90 days. Requests are evaluated individually and approved modifications are based on the unique circumstances of each borrower. We are committed to working with our clients to allow time to work through the challenges of this pandemic. At this time, it is uncertain what future impact loan modifications related to COVID-19 difficulties will have on our financial condition, results of operations and provision for loan losses. Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) or under applicable interagency guidance of the federal banking regulators are excluded from evaluation of troubled debt restructuring (“TDR”) classification and will continue to be reported as current during the payment deferral period. The Company’s policy is to continue to accrue interest during the deferral period. Loans not meeting the CARES Act or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.
As of July 10, 2020, the initial deferral period had expired for 231 loans, totaling $43.3 million. Of the $43.3 million, approximately 74% have begun repayment and the remaining 26% are being evaluated by management for an additional extension.
The following table shows the number of loans and the outstanding loan balances at the time the principal and interest deferrals were approved as of June 30, 2020:
(Dollars In Thousands) | | | | | | | New York and Other states*: | | Number of loans | | | Outstanding loan balance | | Commercial | | | 79 | | | $ | 39,630 | | Residential mortgage loans | | | 441 | | | | 94,028 | | Home equity line of credit | | | 13 | | | | 641 | | Installment loans | | | 5 | | | | 150 | | Total | | | 538 | | | $ | 134,449 | |
Florida: | | Number of loans | | | Outstanding loan balance | | Commercial | | | 5 | | | $ | 5,392 | | Residential mortgage loans | | | 205 | | | | 49,745 | | Home equity line of credit | | | 1 | | | | 9 | | Installment loans | | | 3 | | | | 86 | | Total | | | 214 | | | $ | 55,232 | |
Total: | | Number of loans | | | Outstanding loan balance | | Commercial | | | 84 | | | $ | 45,022 | | Residential mortgage loans | | | 646 | | | | 143,773 | | Home equity line of credit | | | 14 | | | | 650 | | Installment loans | | | 8 | | | | 236 | | Total | | | 752 | | | $ | 189,681 | |
* Includes New York, New Jersey, Vermont and Massachusetts.
The commercial loans that are deferred include various types of businesses. The following table shows the number of commercial loans and the outstanding loan balances, by industry, at the time the principal and interest deferrals were approved as of June 30, 2020:
(Dollars In Thousands) | | | | | | | New York and Other states* | | Number of loans | | | Outstanding loan balance | | Fitness and Recreational Sports Centers | | | 7 | | | $ | 11,534 | | Lessors and Property Managers of Nonresidential Buildings | | | 7 | | | | 6,551 | | Lessors and Property Managers of Residential Buildings | | | 31 | | | | 9,818 | | Other various businesses | | | 14 | | | | 2,558 | | Lessors of Nonresidential Buildings - Self Storage Units | | | 2 | | | | 2,238 | | New Single-Family Housing Construction | | | 3 | | | | 1,921 | | Food Service | | | 5 | | | | 1,351 | | Retail | | | 4 | | | | 1,349 | | New Single-Family Housing Construction - Land Development | | | 3 | | | | 1,260 | | Commercial Construction | | | 3 | | | | 1,050 | | | | | 79 | | | $ | 39,630 | |
Florida: | | Number of loans | | | Outstanding loan balance | | Fitness and Recreational Sports Centers | | | - | | | $ | - | | Lessors and Property Managers of Nonresidential Buildings | | | 2 | | | | 4,533 | | Lessors and Property Managers of Residential Buildings | | | 1 | | | | 46 | | Other various businesses | | | 1 | | | | 319 | | Lessors of Nonresidential Buildings - Self Storage Units | | | 1 | | | | 494 | | New Single-Family Housing Construction | | | - | | | | - | | Food Service | | | - | | | | - | | Retail | | | - | | | | - | | New Single-Family Housing Construction - Land Development | | | - | | | | - | | Commercial Construction | | | - | | | | - | | | | | 5 | | | $ | 5,392 | |
Total: | | Number of loans | | | Outstanding loan balance | | Fitness and Recreational Sports Centers | | | 7 | | | $ | 11,534 | | Lessors and Property Managers of Nonresidential Buildings | | | 9 | | | | 11,084 | | Lessors and Property Managers of Residential Buildings | | | 32 | | | | 9,864 | | Other various businesses | | | 15 | | | | 2,877 | | Lessors of Nonresidential Buildings - Self Storage Units | | | 3 | | | | 2,732 | | New Single-Family Housing Construction | | | 3 | | | | 1,921 | | Food Service | | | 5 | | | | 1,351 | | Retail | | | 4 | | | | 1,349 | | New Single-Family Housing Construction - Land Development | | | 3 | | | | 1,260 | | Commercial Construction | | | 3 | | | | 1,050 | | | | | 84 | | | $ | 45,022 | |
* Includes New York, New Jersey, Vermont and Massachusetts.
Paycheck Protection Program (PPP) and Liquidity
As part of the CARES Act, approved by the President on March 27, 2020, the Small Business Administration (SBA) has been authorized to guarantee loans under the PPP through August 8, 2020 for small businesses who meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020. As of June 30, 2020, 663 PPP loans totaling $45.7 million have been processed. The Company received loan origination fees which are being recognized over the life of the loan using the effective yield method.
On April 9, 2020, the FDIC, Federal Reserve and OCC created the Paycheck Protection Program Liquidity Facility (PPPLF) to bolster the effectiveness of the PPP by providing liquidity to and neutralizing the regulatory capital effects on participating financial institutions. We do not intend to utilize the liquidity relief offered by the PPPLF as we do not expect our participation in the PPP to have a negative impact on our liquidity position, capital resources, financial condition or results of operations.
Asset impairment
At this time, we do not believe there exists any impairment to our goodwill, long-lived assets, right of use assets, held to maturity investment securities, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets.
Provision for loan losses
See “Allowance for Loan Losses” for more information.
Preventative measures
The Company has instituted preventative measures at branch and back office locations to protect the health of both the customers and our employees, including regular deep cleaning of facilities, adhering to CDC guidelines, and practicing “social distancing.” These additional expenses did not have a material impact on the Company for the second quarter of 2020.
Federal Reserve Actions
The Federal Reserve Board has taken several actions to support the flow of credit to households and businesses. Some of these pertinent actions include:
The establishment of the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility; The expansion of central bank liquidity swap lines; Steps to enhance the availability and ease terms for borrowing at the discount window; The elimination of reserve requirements;
Guidance encouraging banks to be flexible with customers experiencing financial challenges related to the coronavirus and to utilize their liquidity and capital buffers in doing so; expanding access to its Paycheck Protection Program Liquidity Facility (PPPLF) for additional SBA-qualified lenders Statements encouraging the use of daylight credit at the Federal Reserve.
Economic Overview During the thirdsecond quarter of 20172020 financial markets werecontinued to be influenced by both underlyingthe economic conditions and by political developments. Equity markets endedthat resulted from the thirdCOVID-19 pandemic. After a dismal first quarter, up, gaining gradually overstocks rebounded in the quarter. For the full thirdsecond quarter, with the S&P 500 Index wasrecording its best quarterly performance since 1998 up 4.0%20.0% from the first quarter of 2020, and the Dow Jones Industrial Average wasjumped the most since 1987, up 4.9%.17.8% from the first quarter of 2020. Credit markets continue to be driven by worldwide economic news, effects of COVID-19, and demand shifts between segments of the bond market as investors seek to capture yield in a continued low rate environment.shifts. The shape of the yield curve continued to flattenremained consistent during the quarter, with average yields flat or down for longer maturities and up for shorter maturities in the third quarter as compared to the second quarter.prior quarters. The 10-year Treasury bond averaged 2.24%.69% during Q3the second quarter compared to 2.26%1.37% in Q2,the first quarter of 2020 a decrease of 268 basis points. The 2-year Treasury bond average rate increased 6decreased 89 basis points to 1.36%,.19% resulting in flatteninga steepening of the yield curve. The spread between the 10-year and the 2-year Treasury bonds contractedexpanded from 0.96%0.28% on average in Q2the first quarter to 0.88%0.49% in Q3.the second quarter of 2020. This spread had been depressed in recent years and compares to 2.42% during its most recent peak in Q4the fourth quarter of 2013. Steeper yield curves are generally favorable for portfolio mortgage lenders like TrustCo. The table below illustrates the range of rate movements for both short term and longer term rates. The target FedFederal Funds range was increased by 25 basis points on June 14, 2017rate remained flat at 0.00% to a range of 1.00% to 1.25%. This increase follows a similar 25 basis point increases announced in December of 2016 and March of 2017.%0.25 for the quarter. Spreads offor most asset classes, including agency securities, corporates, municipals and mortgage-backedmortgage‑backed securities, were down by the end of the quarter as compared to the levels seenof a year earlier, but generally roughly flat with levels seen at the end of the second quarter of 2017.earlier. Changes in rates and spreads during the current quarter were primarily due to a numberthe effects of factors; however, uncertainty about the timing of additional actions that the Federal Reserve Board (“FRB”) would take in regard to the extraordinary accommodations that have influenced markets in recent years and further uncertainty regarding the economy and related issues were key factors. Low risk free rates in major nations have also caused investors to shift into alternative fixed income instruments, contributing to the compression of spreads over the risk free rate. On September 20, 2017 the Federal Open Market Committee announced that it would initiate the balance sheet normalization program discussed in June of 2017. Information regarding this program provided some additional direction to the market.COVID-19 pandemic.
| | | | 3 Month Yield (%) | | | 2 Year Yield (%) | | | 5 Year Yield (%) | | | 10 Year Yield (%) | | | 10 - 2 Year Spread (%) | | | | | | | | | | | | | | | | | | | | Q3/16 | | Beg of Q3 | | | 0.28 | | | | 0.59 | | | | 1.00 | | | | 1.46 | | | | 0.87 | | Peak | | | 0.37 | | | | 0.84 | | | | 1.26 | | | | 1.73 | | | | 0.97 | | Trough | | | 0.18 | | | | 0.56 | | | | 0.94 | | | | 1.37 | | | | 0.76 | | End of Q3 | | | 0.29 | | | | 0.77 | | | | 1.14 | | | | 1.60 | | | | 0.83 | | Average in Q3 | | | 0.30 | | | | 0.73 | | | | 1.13 | | | | 1.56 | | | | 0.84 | | | | | | | | | | | | | | | | | | | | | | | | | Q4/16 | | Beg of Q4 | | | 0.32 | | | | 0.80 | | | | 0.91 | | | | 1.63 | | | | 0.83 | | Peak | | | 0.55 | | | | 1.29 | | | | 1.61 | | | | 2.60 | | | | 1.34 | | Trough | | | 0.30 | | | | 0.80 | | | | 0.91 | | | | 1.63 | | | | 0.83 | | End of Q4 | | | 0.51 | | | | 1.20 | | | | 1.47 | | | | 2.45 | | | | 1.25 | | Average in Q4 | | | 0.43 | | | | 1.01 | | | | 1.24 | | | | 2.14 | | | | 1.13 | | | | | | | | | | | | | | | | | | | | | | | | | Q1/17 | | Beg of Q1 | | | 0.16 | | | | 1.06 | | | | 1.76 | | | | 2.27 | | | | 1.21 | | Peak | | | 0.79 | | | | 1.40 | | | | 2.14 | | | | 2.62 | | | | 1.30 | | Trough | | | 0.50 | | | | 1.12 | | | | 1.80 | | | | 2.31 | | | | 1.11 | | End of Q1 | | | 0.76 | | | | 1.27 | | | | 1.93 | | | | 2.40 | | | | 1.13 | | Average in Q1 | | | 0.60 | | | | 1.24 | | | | 1.95 | | | | 2.45 | | | | 1.20 | | | | | | | | | | | | | | | | | | | | | | | | | Q2/17 | | Beg of Q2 | | | 0.76 | | | | 1.27 | | | | 1.93 | | | | 2.40 | | | | 1.13 | | Peak | | | 1.04 | | | | 1.38 | | | | 1.94 | | | | 2.42 | | | | 1.11 | | Trough | | | 0.79 | | | | 1.18 | | | | 1.71 | | | | 2.14 | | | | 0.78 | | End of Q2 | | | 1.03 | | | | 1.38 | | | | 1.89 | | | | 2.31 | | | | 0.93 | | Average in Q2 | | | 0.91 | | | | 1.30 | | | | 1.81 | | | | 2.26 | | | | 0.96 | | | | | | | | | | | | | | | | | | | | | | | | | Q3/17 | | Beg of Q3 | | | 1.03 | | | | 1.38 | | | | 1.89 | | | | 2.31 | | | | 0.93 | | Peak | | | 1.18 | | | | 1.47 | | | | 1.95 | | | | 2.39 | | | | 1.00 | | Trough | | | 0.98 | | | | 1.27 | | | | 1.63 | | | | 2.05 | | | | 0.77 | | End of Q3 | | | 1.06 | | | | 1.47 | | | | 1.92 | | | | 2.33 | | | | 0.86 | | Average in Q3 | | | 1.05 | | | | 1.36 | | | | 1.81 | | | | 2.24 | | | | 0.88 | |
| | | 3 Month | 2 Year | 5 Year | 10 Year | 10 - 2 Year | | | | Yield (%) | Yield (%) | Yield (%) | Yield (%) | Spread (%) | | | | | | | | | | | | | | | | | | | | | | | | | Q2/19 | | Beg of Q2 | 2.40 | 2.27 | 2.23 | 2.41 | 0.14 | | Peak | 2.47 | 2.41 | 2.41 | 2.60 | 0.30 | | Trough | 2.11 | 1.71 | 1.73 | 2.00 | 0.14 | | End of Q2 | 2.12 | 1.75 | 1.76 | 2.00 | 0.25 | | Average in Q2 | 2.35 | 2.13 | 2.12 | 2.34 | 0.21 | | | | | | | | | Q3/19 | | Beg of Q3 | 2.12 | 1.75 | 1.76 | 2.00 | 0.25 | | Peak | 2.26 | 1.92 | 1.88 | 2.13 | 0.28 | | Trough | 1.80 | 1.43 | 1.32 | 1.47 | -0.04 | | End of Q3 | 1.88 | 1.63 | 1.55 | 1.68 | 0.05 | | Average in Q3 | 2.03 | 1.69 | 1.63 | 1.80 | 0.11 | | | | | | | | | Q4/19 | | Beg of Q4 | 1.88 | 1.63 | 1.55 | 1.68 | 0.05 | | Peak | 1.82 | 1.68 | 1.75 | 1.94 | 0.34 | | Trough | 1.52 | 1.39 | 1.34 | 1.52 | 0.09 | | End of Q4 | 1.55 | 1.58 | 1.69 | 1.92 | 0.34 | | Average in Q4 | 1.61 | 1.59 | 1.61 | 1.79 | 0.20 | | | | | | | | | Q1/20 | | Beg of Q1 | 1.55 | 1.58 | 1.69 | 1.92 | 0.34 | | Peak | 1.59 | 1.58 | 1.67 | 1.88 | 0.68 | | Trough | 0.00 | 0.23 | 0.37 | 0.54 | 0.12 | | End of Q1 | 0.11 | 0.23 | 0.37 | 0.70 | 0.47 | | Average in Q1 | 1.10 | 1.08 | 1.14 | 1.37 | 0.28 | | | | | | | | | Q2/20 | | Beg of Q2 | 0.11 | 0.23 | 0.37 | 0.70 | 0.47 | | Peak | 0.26 | 0.28 | 0.48 | 0.91 | 0.69 | | Trough | 0.09 | 0.13 | 0.28 | 0.58 | 0.38 | | End of Q2 | 0.16 | 0.16 | 0.29 | 0.66 | 0.50 | | Average in Q2 | 0.14 | 0.19 | 0.36 | 0.69 | 0.49 |
The United States economy continuescontinued to show some modest improvements in somevarious areas but continuesheading into 2020 until the COVID-19 uncertainty began to face challenges. Employment metrics have generally improved, but remain inconsistent and not particularly robust.gain momentum. Economic conditions vary significantly over geographic areas, with strength concentrated in and around major population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors. The unprecedented intervention by governments in markets and attempts to stimulate the economy, including the sharp easing of monetary policy during 2007-2008, will eventually be reversed. How and when the Federal Reserve resolves its own balance sheet expansion has been an area of significant focus of economists and market participants. As noted, guidance on this issue was provided in late September. Economic activity in Europe, China and elsewhere has also improved in some aspects, but remains mixed. Finally, regulatory changes that have been enacted are expected to continue to impact the banking industry going forward. These regulatory changes have added significant operating expense and operational burden and have fundamentally changed the way banks conduct business. The current presidential administration has set policy initiatives that include attempts to reduce the regulatory burden; the timing and extent of any success on that front is yet to be determined. Fiscal policy initiatives, particularly a plan to significantly reduce corporate tax rates could have a major impact on the economy and on TrustCo, but there is no certainty that those initiatives will take effect at all or will result in any timely and/or significant change. TrustCo believes that its long-term focus on traditional banking services and practices has enabled the Company to avoid significant impact from asset quality problems and that the Company’s strong liquidity and solid capitalwell capitalized positions have allowed the Company to continue to conduct business in a manner consistent with its past practice. TrustCo has not engaged in the types of high risk loans and investments that have led to the widely reported problems in the industry.industry, particularly those arising during the 2008-2010 financial crisis. Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to historical levels from time to time. While the Company does not expect to see a significant change in the inherent risk of loss in its loan portfolio at September 30, 2017, shouldShould general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of the COVID-19 pandemic, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.
In a direct response to the COVID-19 pandemic, on March 27, 2020 Congress passed the CARES Act. Included in the CARES Act is support for small businesses, direct payments to lower and middle income families, expanded unemployment insurance, additional funding for health care providers, as well as support for other industries. The Federal Reserve Board, in an attempt to increase liquidity and promote the normal functioning of financial markets, also provided support by increasing purchases of Treasury securities and agency mortgage-backed securities.
Financial Overview TrustCo recorded net income of $12.6$11.3 million, or $0.131$0.117 of diluted earnings per share, for the three months ended SeptemberJune 30, 2017,2020, compared to net income of $10.9$14.7 million, or $0.114$0.151 of diluted earnings per share, in the same period in 2016.2019. Return on average assets was 1.02%0.82% and 0.90,1.14%, respectively, for the three monthsthree-months ended SeptemberJune 30, 20172020 and 2016.2019. Return on average equity was 11.06%8.21% and 10.05%11.60%, respectively, for the three monthsthree-months ended SeptemberJune 30, 20172020 and 2016.2019.
For the nine months ended September 30, 2017, net income was $35.8 million or $0.372 of diluted earnings per share, compared to $31.8 million and $0.333 per share, respectively, in the same period in 2016. Return on average assets was 0.98% and 0.89%, respectively, for the nine months ended September 30, 2017 and 2016. Return on average equity was 10.77% and 9.97%, respectively, for the nine months ended September 30, 2017 and 2016.
The primary factors accounting for the change in net income for the three months ended SeptemberJune 30, 20172020 compared to the same period of the prior year were:
| ·• | An increase in the average balance of interest earning assets of $55.8$310.1 million or 6.1% to $4.80$5.35 billion for the thirdsecond quarter of 20172020 compared to the same period in 20162019. |
A decrease in taxable equivalent net interest margin for the second quarter of 2020 to 2.81% from 3.11% in the prior year period. The decrease in the margin, offset with the increase in average earning assets, resulted in a decrease of $1.5 million in taxable equivalent net interest income in the second quarter of 2020 compared to the second quarter of 2019.
| · | An increase in taxable equivalent net interest margin for the third quarter of 2017 to 3.26% from 3.09% in the prior year period. The increase in the margin, coupled with the increase in average earning assets, resulted in an increase of $2.5 million in taxable equivalent net interest income in the third quarter of 2017 compared to the third quarter of 2016. |
An increase of $2.3 million in provision for loan losses for the second quarter of 2020 compared to the second quarter 2019. This increase is primarily driven by the uncertainty surrounding the current pandemic.
| · | An increase of $497 thousand in Financial Services income for the third quarter of 2017 as compared to the prior year period due to cash received from the settlement of several estates resulting in revenue greater that the estimated accrued amount. |
A decrease of $1.5 million in noninterest income for the second quarter of 2020 compared to the second quarter 2019. The decrease is primarily driven by less financial services income due to lower market values of managed asset balances, as well as less overdraft fees from customers.
A decrease of $1.0 million in noninterest expense for the second quarter of 2020 compared to the second quarter 2019. This decrease is primarily driven by ongoing efforts to control costs.
| · | An increase of $1.4 million in salaries and benefits expense for the third quarter of 2017 compared to the third quarter of 2016, due to a combination of higher staffing levels, the impact of a higher stock price on liability-based stock compensation plans and other factors. |
| · | A decrease of $280 thousand in Professional Services expense for the third quarter of 2017 compared to the third quarter of 2016. |
| · | A increase of $210 thousand in Advertising expense for the third quarter of 2017 compared to the third quarter of 2016. |
| · | A decrease of $620 thousand in Other Real Estate expense for the third quarter of 2017 compared to the third quarter of 2016 due to increased gains recognized in the sale of properties. |
| · | An increase of $694 thousand in income taxes in the third quarter of 2017 compared to the prior year due primarily to higher pre-tax earnings. |
The primary factors accountingTrustCo recorded net income of $24.6 million, or $0.254 of diluted earnings per share, for the change insix‑months ended June 30, 2020, compared to net income of $29.2 million, or $0.302 of diluted earnings per share, in the same period in 2019. Return on average assets was 0.92% and 1.15%, respectively, for the nine monthssix-months ended SeptemberJune 30, 2017 compared to2020 and 2019. Return on average equity was 9.04% and 11.76%, respectively, for the same periods of the prior year were:six-months ended June 30, 2020 and 2019.
| · | An increase in the average balance of interest earning assets of $104.5 million to $4.90 billion for the first nine months of 2017 compared to the same period in 2016.
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| · | An increase in taxable equivalent net interest margin for the first nine months of 2017 to 3.20% from 3.10% in the prior year period. The increase in the margin coupled with the increase in average earning assets, resulted in an increase of $6.0 million in taxable equivalent net interest income in the first nine months of 2017 compared to the same period in 2016. |
| · | A decrease of $668 thousand in securities gains for the first nine months of 2017 as compared to the prior year period. |
| · | An increase of $663 in Financial Services income for the first nine months of 2017 as compared to the prior year period, the majority of which was recognized in the third quarter as noted previously.
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| · | An increase of $3.2 million in salaries and benefits for the first nine months of 2017 as compared to the prior year period, for similar reasons as previously noted in regard to the third quarter of 2017.
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| · | A decrease of $2.0 million in FDIC and other insurance expense and a decrease of $1.1 million in net other real estate (“ORE”) expense, for the first nine months of 2017 compared to the same period in 2016. |
| · | An increase of $2.2 million in income taxes, in the first nine months of 2017 compared to the same period in 2016, due to an increase in pretax earnings. |
Regulatory Agreement
On July 21, 2015 Trustco Bank, the wholly owned subsidiary of the Company, entered into a formal agreement with the OCC (the “Agreement”).
The Agreement relates to the findings of the OCC following its regularly scheduled examination of the Bank in January 2015. Since the completion of the examination and entry into the Agreement, the Bank believes it has been working diligently to address the findings of the examination and to develop and implement appropriate formal action plans.
The Agreement requires the Bank to take various actions, within prescribed time frames, with respect to certain activities of the Bank. These include, among others, (i) establishment of a committee of at least three Directors to monitor and coordinate the Bank’s response to the Formal Agreement; (ii) adoption of compliance plans to respond to the Formal Agreement with the assistance of an independent qualified consultant; (iii) evaluation and implementation of improvements in corporate governance with the assistance of an independent qualified consultant; (iv) evaluation and implementation of improvements in internal audit; (v) development of a strategic plan; (vi) development of a revised capital plan, including dividends, consistent with the strategic plan; (vii) development and implementation of improvements to the Bank’s loan review system; and (viii) such other necessary steps to address the issues and questions noted by the OCC in the Agreement. The costs to implement the recommendations in the agreement are expected to remain elevated, reflecting the Company’s investment in additional personnel and systems within the retail loan, deposit and regulatory compliance areas.
Asset/Liability Management The Company strives to generate its earnings capabilities through a mix of core deposits funding a prudent mix of earning assets. 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.
TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, inby the national economy, financial market conditions and the regulatory environment. Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results. Included in the Annual Report to Shareholders on Form 10-K for the year ended December 31, 20162019 is a description of the effect interest rates had on the results for the year 20162019 compared to 2015.2018. Many of the same market factors discussed in the 20162019 Annual Report continued to have a significant impact on results through the thirdsecond quarter of 2017.2020, as well as the economic effect of COVID-19.
TrustCo competes with other financial service providers based upon many factors including quality of service, convenience of operations and rates paid on deposits and charged on loans. In the experience of management, the absolute level of interest rates, changes in interest rates and customers’ expectations with respect to the direction of interest rates have a significant impact on the volume of loan and deposit originations in any particular period. Interest rates have a significant impact on the operations and financial results of all financial services companies. One of the most important interest rates used to implementcontrol national economic policy is the Federal Funds“Federal Funds” rate. This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating. TheDuring 2007‑2008 the FRB aggressively reduced the Federal Funds target rate, decreasedincluding a decrease from 4.25% at the beginning of 2008 to a target range of 0.00% to 0.25% by the end of 2008. InThe target range remained at that level until December 2015 when the targetrange was increased to a0.25% to 0.50%. Subsequent increases resulted in the range of 0.25%2.25% to 0.50%,2.50% until the second half of 2019 when the rate was cut several times before the end of 2019. During the first quarter of 2020 the rate was significantly decreased again as a result of the global pandemic related to COVID-19, and 25 basis point increases inhas returned the target range were also announced in December of 2016 and March and June of 2017, producing the current range of 1.00%0.00% to 1.25%0.25%. Additional increases in 2017 and beyond will largely be dependent on the strength of economic conditions. In the November 1, 2017 statement from the Federal Open Market Committee, it was noted that, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
Traditionally, interest rates on bank deposit accounts are heavily influenced by the Federal Funds rate. The average rate on interest bearing deposits was 3 basis points lower in the third quarter of 2017 relative to the prior year period. Rates were flat or lower on all deposit categories as compared to the same period in 2016 except money market accounts. Please refer to the statistical disclosures in the table below entitled “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential.”
The interest rate on the 10-yearten-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans. The FRB has attempted to influence rates on mortgage loans by means other than targeting a lower Federal Funds rate, including direct intervention in the mortgage-backed securities market through purchasing these securities in an attempt to raise prices and reduce yields. In recent periods this includes the reinvestment of principal payments received on its holdings of agency securities, agency mortgage-backed securities and Treasury securities. The FRB has stated its intent to unwind these positions, which could put upward pressure on rates, although other factors may mitigate this pressure. These changes in interest rates can have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and other short termshort-term instruments as well as onthe interest expense on deposits and borrowings. The FRB plan to reduce its holdings began in October 2017 and will occur gradually. TrustCo’s principal loan products are residential real estate loans. As noted above, residentialResidential real estate loans and longer-termlonger‑term investments are most affected by the changes in longer term market interest rates such as the 10-year10‑year Treasury. The 10-year Treasury yield was down 2 basis points,Federal Funds sold portfolio and other short‑term investments are affected primarily by changes in the Federal Funds target rate. Deposit interest rates are most affected by short term market interest rates. Also, changes in interest rates have an effect on average, during the third quarterrecorded balance of 2017 compared to the second quartersecurities available for sale portfolio, which are recorded at fair value. Generally, as market interest rates increase, the fair value of 2017 but was up 68 basis points as compared to the third quarter of 2016.
securities will decrease and the reverse is also generally applicable. Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae. AsBecause TrustCo is a portfolio lender TrustCoand does not sell loans into the secondary market, in the normal course of business and is able to establishCompany establishes rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive with the secondary market rates. FinancialHigher market volatilityinterest rates also generally increase the value of retail deposits.
TrustCo’s principal loan products are residential real estate loans. As noted above, residential real estate loans and the problems facedlonger‑term investments are most affected by the financial services industry have lessened the influence of the secondary market; however, various programs initiated by arms of the federal government have had an impact on rate levels for certain products. Most importantly, a government goal of keeping mortgage rates low has been supported by targeted buying of certain securities, thus supporting prices and constraining yields, as noted above. Very lowchanges in longer term market interest rates in many markets aroundsuch as the world have also increased demand for US fixed income assets, which has also contributedten-year Treasury. The 10‑year Treasury yield was down 110 basis points, on average, during the second quarter of 2020 compared to the decline of yields on these assets.
The Federal Funds sold and other short term investments portfolios are affected primarily by changes in the Federal Funds target rate. Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which is recorded at fair value. Generally, as interest rates increase the fair value of these securities will decrease.
Interest rates generally remained below historic norms on both short term and longer term investments during the thirdfourth quarter of 2017 despite2019 and was down 165 basis points as compared to the increases seen during the quarter.second quarter of 2019.
While TrustCo has been affected by changes in financial markets over time, the impact of the financial crisis that began in 2007 wasimpacts have been mitigated by the Company’s generally conservative approach to banking. The Company utilizes a traditional underwriting process in evaluating loan applications, and since originated loans are retained in the portfolio, there is a strong incentive to be conservative in making credit decisions. For additional information concerning TrustCo’s loan portfolio and nonperforming loans, please refer to the discussions under “Loans” and “Nonperforming Assets,” respectively. Further, the Company does not rely on borrowed funds to support its assets and maintains a significant level of liquidity on the asset side of the balance sheet. These characteristics provide the Company with increased flexibility and stability during periods of market disruption and interest rate volatility.
A fundamental component of TrustCo’s strategy has been to grow customer relationships and the deposits and loans that are part of those relationships. The Company has significant capacity to grow its balance sheet given its existing infrastructure.extensive branch network. The Company expects that growth to be profitable. The current interest rate environment, however, has narrowed the margin on incremental balance sheet expansion. While the Company has not changed its fundamental long term strategy in regard to utilizing its excess capacity, management continually evaluates changing conditions and may seek to limit growth or reduce the size of the balance sheet if its analysis indicates that doing so would be beneficial. For the thirdsecond quarter of 2017,2020, the net interest margin was 3.26%2.81%, up 17down 30 basis points versus the prior year’s quarter. The quarterly results reflect the following significant factors:
The average balance of Federal Funds sold and other short-term investments decreasedincreased by $61.9$181.3 million while the average yield increased 74decreased 230 basis points in the thirdsecond quarter of 20172020 compared to the same period in 2016. The decrease in the average balance helped to fund increases in loans. 2019.
The average balance of securities available for sale decreased by $39.8$137.8 million while the average yield increased 13decreased 31 basis points to 1.92%2.08%. The average balance of held to maturity securities decreased by $13.1$4.0 million and the average yield increased 7decreased 20 basis points to 4.10%3.75% for the thirdsecond quarter of 20172020 compared to the same period in 2016, with the increase in yield in both portfolios due to a combination of slower prepayment speeds on mortgage-backed securities and the fact that corporate securities, which have higher yields, comprised a larger component of the portfolio in the 2017 period than in the 2016 period.2019.
The average loan portfolio grew by $171.0$270.5 million to $3.54$4.15 billion and the average yield decreased 526 basis points to 4.24%4.02% in the thirdsecond quarter of 20172020 compared to the same period in 2016. The decline in the average yield primarily reflects the decline in market interest rates on new loan originations as older, higher rate loans pay down or are paid off, as well as declines in higher yielding commercial and installment loans. 2019.
The average balance of interest bearing liabilities (primarily deposit accounts)time deposits) increased $13.2$156.4 million and the average rate paid decreased 227 basis points to 0.36%0.64% in the thirdsecond quarter of 20172020 compared to the same period in 2016. 2019.
During the thirdsecond quarter of 2017,2020, the Company continued to focus on its strategy to expand the loan portfolio by offering competitive interest rates. Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors. Competition remains strong in the Company’s market areas.
The strategy on the funding side of the balance sheet continuesis to beoffer competitive shorter term rates which allowed the Bank to attractgain market share as well as retain our existing time deposits. This strategy drove growth at a relatively low cost that will sustain TrustCo’s strong liquidity position and retain deposit customerscontinue to the Company based upon a combinationallow us to cross sell new relationships and take advantage of service, convenience and interest rate.opportunities as they arise.
Earning Assets Total average interest earning assets increased from $4.75$5.04 billion in the thirdsecond quarter of 20162019 to $4.80$5.35 billion in the same period of 20172020 with an average yield of 3.56%3.33% in the thirdsecond quarter of 20172020 and 3.41%3.86% in the thirdsecond quarter of 2016. The2019. There was a shift in the mix of assets towards a higher proportion of loans, along withfederal funds sold and other short-term investments from securities available for sale. The sharp decrease in the increase infederal funds rate during the last month of the first quarter of 2020 significantly decreased the average yield on cash, more than offset the declining yieldsfederal funds sold and other short-term investments from 2.41% in the second quarter of 2019 to 0.11% in the second quarter of 2020, which drove down the overall yield on loans.interest earning assets. Interest income on average earning assets increaseddecreased from $40.5$48.7 million in the thirdsecond quarter of 20162019 to $42.8$44.6 million in the thirdsecond quarter of 2017,2020, on a tax equivalent basis. The increasebasis, and was primarily driven by the result of higher volume and yield.lower federal funds rate as mentioned above. Loans The average balance of loans was $3.54$4.15 billion in the thirdsecond quarter of 20172020 and $3.37$3.88 billion in the comparable period in 2016.2019. The yield on loans decreased 5was down 26 basis points to 4.24%4.02%. Interest income on loans was $41.7 million in the second quarter of 2020 up $233 thousand from the same period in 2019. The higher average balances was slightly more than enough to offset the lower yield, leading to an increasedecrease in interest income on loans from $36.2 million in the third quarter of 2016 to $37.5 million in the third quarter of 2017.yield.
Compared to the thirdsecond quarter of 2016,2019, the average balance of residential mortgage loans increased, however other loan categories decreased.and commercial loans increased. The average balance of residential mortgage loans was $3.04$3.65 billion in 2017the second quarter of 2020 compared to $2.82$3.40 billion in 2016,2019, an increase of 7.7%7.6%. The average yield on residential mortgage loans decreased by 1216 basis points to 4.16%3.98% in the thirdsecond quarter of 20172020 compared to 2016.2019.
TrustCo actively markets the residential loan products within its market territories. Mortgage loan rates are affected by a number of factors including rates on Treasury securities, the Federal Funds rate and rates set by competitors and secondary market participants. TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders. These unique aspects include low closing costs, fast turn-around time on loan approvals, no escrow or mortgage insurance requirements for qualified borrowers and the fact that the Companytypically holds these loans in portfolio and does not sell them into the secondary markets. Assuming an eventual a rise in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.
Commercial loans, which consist primarily of loans secured by commercial real estate, decreased $11.2increased $33.1 million to an average balance of $183.9$223.0 million in the thirdsecond quarter of 20172020 compared to the same period in the prior year.year, primarily as a result of the issuance of the PPP loans. The average yield on this portfolio was up 8down 68 basis points to 5.40%4.68% compared to the prior year period, primarily reflectingas a result of the increase in1% interest rate on the prime rate.PPP Loans. The Company has beenremains selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.
The average yield on home equity credit lines increased 44decreased 112 basis points to 4.14%3.89% during the thirdsecond quarter of 20172020 compared to the year earlier period. The increasedecrease in yield is the result of prime rate increasesdecreases which impacted some loans andas well as a smaller proportionpercentage of lower yielding initial rate balances. The average balances of home equity lines decreased 9.8%7.0% to $312.8$260.0 million in the thirdsecond quarter of 20172020 as compared to the prior year. Some customersCustomers with home equity lines have refinancedcontinue to refinance their balances into fixed rate mortgage loans.
Securities Available for Sale The average balance of the securities available for sale portfolio for the thirdsecond quarter of 20172020 was $594.2$454.0 million compared to $633.9$591.8 million for the comparable period in 2016.2019. The declining balance reflects routine sales, paydowns, calls and maturities, partially offset by new investment purchases. The current interest rate environment has significantly contributed to more bonds being called. The average yield was 1.92%2.08% for the thirdsecond quarter of 20172020 compared to 1.79%2.39% for the thirdsecond quarter of 2016.2019. This portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), agency-issued commercial mortgage backed securities, Small Business Administration participation certificates, corporate bonds and municipal bonds. These securities are recorded at fair value with any adjustment in fair value included in accumulated other comprehensive income (loss),loss, net of tax. The net unrealized lossgain in the available for sale securities portfolio was $5.8$10.9 million as of SeptemberJune 30, 20172020 compared to a net unrealized lossgain of $11.3 million$391 thousand as of December 31, 2016.2019. The unrealized lossgain in the portfolio is primarily the result of changes in market interest rate levels.
Held to Maturity Securities The average balance of held to maturity securities was $36.9$17.2 million for the thirdsecond quarter of 20172020 compared to $50.0$21.2 million in the thirdsecond quarter of 2016.2019. The decrease in balances reflects routine paydowns and calls. No new securities were added to this portfolio during the period. The average yield was 4.10%3.75% for the thirdsecond quarter of 20172020 compared to 4.03%3.95% for the year earlier period. The higher yield reflects a change in mix and slower prepayments on mortgage-backed securities (MBS), which reduced premium amortization. TrustCo expects to hold the securities in this portfolio until they mature or are called.
As of SeptemberJune 30, 2017,2020, this portfolio consisted solely of residentialagency issued mortgage-backed securities. The balances for these securities are recorded at amortized cost.
Federal Funds Sold and Other Short-term Investments The 2017 third2020 second quarter average balance of Federal Funds sold and other short-termshort‑term investments was $621.9$727.0 million, a $61.9$181.3 million decreaseincrease from the $683.8$545.7 million average for the same period in 2016.2019. The yield was 1.24%0.11% for the thirdsecond quarter of 20172020 and 0.50%2.41% for the comparable period in 2016.2019. Interest income from this portfolio increased $1.1decreased $3.1 million from $866$3.3 million in 2019 to $193 thousand in 20162020. The higher average balances was not enough to $1.9 million in 2017, reflecting theoffset several target rate increases that took effect in December of 2016 and March and June of 2017, partly offset by the decrease in balances.decreases.
The Federal Funds sold and other short-term investments portfolio is utilized to generate additional interest income and liquidity as funds are waiting to be deployed into the loan and securities portfolios.
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, demand deposits, interest-bearing checking, money market and time deposit accounts.
Total average interest bearing depositsdeposit accounts (which includes interest bearing checking, money market accounts, savings, and certificates of deposit) decreased $20.1time deposits) increased $146.2 million to $3.79$4.15 billion for the thirdsecond quarter of 20172020 versus the thirdsecond quarter in the prior year, and the average rate paid decreased from 0.37%0.91% for 20162019 to 0.34%0.64% for 2017.2020. Total interest expense on these deposits decreased $291 thousandfrom $9.1 million to $3.3$6.7 million in the thirdsecond quarter of 20172020 compared to the year earlier period. From the thirdsecond quarter of 20162019 to the thirdsecond quarter of 2017,2020, interest bearing demand account average balances were up 10.4%8.4%, certificates of deposit average balances were down 8.3%3.1%, non-interest demand average balances were up 3.1%31.1%, average savings balances decreased 0.3%increased 2.6% and money market balances were up 0.1%15.9%. Our growth in deposits came at relatively low cost and continues to be offset by higher earnings on loan yields and returns in the investment portfolio. Because we offered competitive shorter term CD rates in the past, we expect cost of interest bearing liabilities to continue to decrease as these reprice at lower rates.
At June 30, 2020, the maturity of total time deposits is as follows:
(dollars in thousands) | | | | | | | | Under 1 year | | $ | 1,304,284 | | 1 to 2 years | | | 72,695 | | 2 to 3 years | | | 10,380 | | 3 to 4 years | | | 3,152 | | 4 to 5 years | | | 2,062 | | Over 5 years | | | 196 | | | | $ | 1,392,769 | |
Average short-term borrowings for the second quarter were $172.8 million in 2020 compared to $162.7 million in 2019. The average rate decreased during this time period from 0.94% in 2019 to 0.55% in 2020. The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.
The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. The Bank is a member of the Federal Home Loan Bank of New York (FHLBNY) and is an eligible borrower at the Federal Reserve Bank of New York (FRBNY) and has the ability to borrow utilizing securities and/or loans as collateral at either. The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a potential contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness.
At September 30, 2017, the maturity of total time deposits is as follows:
(dollars in thousands) | | | | | | | | Under 1 year | | $ | 773,959 | | 1 to 2 years | | | 274,233 | | 2 to 3 years | | | 23,568 | | 3 to 4 years | | | 1,912 | | 4 to 5 years | | | 1,989 | | Over 5 years | | | 225 | | | | $ | 1,075,886 | |
Average short-term borrowings for the quarter were $223.2 million in 2017 compared to $189.9 million in 2016. The average rate increased during this time period from 0.59% in 2016 to 0.62% in 2017. The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.
Net Interest Income Taxable equivalent net interest income increaseddecreased by $2.5$1.5 million to $39.2$37.7 million in the thirdsecond quarter of 20172020 compared to the same period in 2016.2019. The net interest spread was up 18down 26 basis points to 3.21%2.69% in the thirdsecond quarter of 20172020 compared to the same period in 2016.2019. As previously noted, the net interest margin was up 17down 30 basis points to 3.26%2.81% for the thirdsecond quarter of 20172020 compared to the same period in 2016.2019.
Taxable equivalent net interest income decreased by $2.7 million to $76.2 million in the first six-months of 2020 compared to the same period in 2019. The net interest spread was down 23 basis points to 2.80% in the first six-months of 2020 compared to the same period in 2019. Net interest margin was down 24 basis points to 2.93% for the first six‑months of 2020 compared to the same period in 2019.
Nonperforming Assets Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non-accrualnon‑accrual status and loans past due three payments or more and still accruing interest. Also included in the total of nonperforming assets are foreclosed real estate properties, which are included in other assets and categorized as other real estate owned. As of June 30, 2020, there were no pandemic related deferrals that have been recorded as NPLs or troubled debt restructurings (“TDRs”).
The following describes the nonperforming assets of TrustCo as of SeptemberJune 30, 2017:2020:
Nonperforming loans and foreclosed real estate: Total NPLs were $24.6$21.9 million at SeptemberJune 30, 2017,2020, compared to $25.1$20.9 million at December 31, 20162019 and $26.0$22.1 million at SeptemberJune 30, 2016.2019. There were $24.5$21.9 million of non-accrual loans at SeptemberJune 30, 20172020 compared to $25.0$20.8 million at December 31, 20162019 and $26.0$22.1 million at SeptemberJune 30, 2016.2019. There were no loans at SeptemberJune 30, 20172020 and 20162019 and December 31, 20162019 that were past due 90 days or more and still accruing interest. At SeptemberJune 30, 2017,2020, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $24.5$21.9 million at SeptemberJune 30, 2017, $22.82020, $21.3 million were residential real estate loans, $1.7 million$571 thousand were commercial loans and mortgages and $30$6 thousand were installment loans, compared to $23.2$20.0 million, $1.8 million$816 thousand and $48$3 thousand, respectively, at December 31, 2016.2019.
A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Annualized net chargeoffsNet recoveries were 0.07% of average$27 thousand on residential real estate loans (including home equity lines of credit) for the thirdsecond quarter of 20172020 compared to 0.06%net recoveries $79 thousand for the thirdsecond quarter of 2016.2019. Management believes that these loans have been appropriately written down where required.
Ongoing portfolio management is intended to result in early identification and disengagement from deteriorating credits. TrustCo has a diversified loan portfolio that includes a significant balance of residential mortgage loans to borrowers in the Capital Region of New York and avoids concentrations to any one borrower or any single industry. TrustCo has no advances to borrowers or projects located outside the United States. TrustCo continues to identify delinquent loans as quickly as possible and to move promptly to resolve problem loans. Efforts to resolve delinquencies begin immediately after the payment grace period expires, with repeated, automatically generated notices, as well as personalized phone calls and letters. Loans are placed in nonaccrual status once they are 90 days past due, or earlier if management has determined that such classification is appropriate. Once in nonaccrual status, loans are either brought current and maintained current, at which point they may be returned to accrual status, or they proceed through the foreclosure process. Due to the recent COVID-19 pandemic, the Bank is monitoring recent regulatory mandates by state in regards to a moratorium on foreclosures. The collateral on secured nonaccrual loans is evaluated periodically, and the loan value is written down if the collateral value is insufficient.
The Company originates loans throughout its depositbranch franchise area. At SeptemberJune 30, 2017, 77.2%2020, 73.2% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 22.8%26.8% were in Florida. Those figures compare to 78.5%74.4% and 21.5%25.6%, respectively, at December 31, 2016. Within these two geographic regions, commercial loans constitute a larger component of the local outstandings in New York than in Florida, at 6.3% and 1.6%, respectively, as of September 30, 2017.2019.
Economic conditions vary widely by geographic location. Florida experienced a more significant downturn than New York during the recession, however conditions in Florida have improved more than in New York in recent periods. As a percentage of the total nonperforming loans as of SeptemberJune 30, 2017, 7.7%2020, 5.1% were to Florida borrowers, compared to 92.3%94.9% to borrowers in New York and surrounding areas. For the three months ended SeptemberJune 30, 2017,2020, New York and surrounding areas experienced net chargeoffs of approximately $667 thousand, compared to net$11 thousand. There were no chargeoffs or recoveries in Florida for the second quarter of $37 thousand in Florida.2020. Other than loans currently identified as nonperforming, management is aware of no other loans in the Bank’s portfolio that pose material risk of the eventual non-collection of principal and interest. Also as of SeptemberJune 30, 2017,2020, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources.
TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured under a troubled debt restructuring (TDR),TDR, as impaired loans. There were $3.0$1.0 million of commercial mortgages and commercial loans classified as impaired as of SeptemberJune 30, 20172020 compared to $2.4$1.4 million at December 31, 2016.2019. There were $21.6$19.3 million of impaired residential loans at SeptemberJune 30, 20172020 and $21.6$19.5 million at December 31, 20162019. The average balances of all impaired loans were $25.0$20.6 million for the ninesix months of 20172020 and $22.4$21.0 million for the full year 2016.2019.
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.
At SeptemberJune 30, 20172020 there was $2.9 million$830 thousand of foreclosed real estate compared to $4.3$1.6 million at December 31, 2016.2019.
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 probable incurred losses in the loan portfolio. (dollars in thousands) | | As of June 30, 2020 | | | As of December 31, 2019 | | | | Amount | | | Percent of Loans to Total Loans | | | Amount | | | Percent of Loans to Total Loans | | Commercial | | $ | 4,167 | | | | 5.12 | % | | $ | 3,805 | | | | 4.47 | % | Real estate - construction | | | 314 | | | | 0.65 | % | | | 311 | | | | 0.70 | % | Real estate mortgage - 1 to 4 family | | | 39,349 | | | | 87.90 | % | | | 35,632 | | | | 87.96 | % | Home equity lines of credit | | | 3,810 | | | | 6.09 | % | | | 3,999 | | | | 6.60 | % | Installment Loans | | | 504 | | | | 0.24 | % | | | 570 | | | | 0.27 | % | | | $ | 48,144 | | | | 100.00 | % | | $ | 44,317 | | | | 100.00 | % |
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loans losses is as follows:
(dollars in thousands) | | | | | | | | | Amount | | | | | | Amount | | | | | Commercial | | $ | 4,490 | | | | 4.94 | % | | $ | 4,820 | | | | 5.32 | % | Real estate - construction | | $ | 343 | | | | 0.78 | % | | | 318 | | | | 0.72 | % | Real estate mortgage - 1 to 4 family | | $ | 33,083 | | | | 85.34 | % | | | 32,452 | | | | 83.94 | % | Home equity lines of credit | | $ | 5,440 | | | | 8.71 | % | | | 5,570 | | | | 9.76 | % | Installment Loans | | $ | 726 | | | | 0.23 | % | | | 730 | | | | 0.26 | % | | | $ | 44,082 | | | | 100.00 | % | | $ | 43,890 | | | | 100.00 | % |
At SeptemberJune 30, 2017,2020, the allowance for loan losses was $44.1$48.1 million, compared to $44.0$44.4 million at SeptemberJune 30, 20162019 and $43.9$44.3 million at December 31, 2016.2019. The allowance represents 1.23%1.15% of the loan portfolio as of SeptemberJune 30, 20172020 compared to 1.30%1.14% at SeptemberJune 30, 20162019 and 1.28%1.09% at December 31, 2016.2019. The provision for loan losses was $550$2 million for the quarter ended June 30, 2020 and a credit of $341 thousand for the quarter ended SeptemberJune 30, 2017 and $750 thousand for2019. The increase is primarily driven by the quarter ended September 30, 2016.uncertainty in the current economic environment resulting from COVID-19. Net chargeoffs for the three-month period ended SeptemberJune 30, 20172020 were $630$11 thousand and were $864compared to net recoveries of $35 thousand for the prior year period.
During the thirdsecond quarter of 2017,2020, there were no$6 thousand of commercial loan chargeoffs and $847net recoveries, $27 thousand of grossnet residential mortgage andrecoveries offset by $44 thousand of consumer loan chargeoffs, compared with $356$1 thousand of grossnet commercial loan chargeoffs and $611recoveries, $54 thousand of gross residential mortgage recoveries, and $45 thousand of consumer loan chargeoffs infor the third quarter of 2016. Gross recoveries during the third quarter of 2017 were zero for commercial loans and $217 thousand for residential mortgage and consumer loans, compared to $3 thousand for commercial loans and $100 thousand for residential and consumer in the third quarter of 2016.same period prior year.
In determining 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 recent loan chargeoffs and recoveries; |
| · | The growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories, and; | The growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories; | · | The economic environment in the Upstate New York and Florida territories over the last several years, as well as in the Company’s other market areas; and Florida territories over the last several years, as well as in the Company’s other market areas. |
The economic environment as a result of the global pandemic.
Management continues to monitor these factors in determining the provision for loan losses in relation to loan chargeoffs, recoveries, the level and trends of nonperforming loans and overall economic conditions in the Company’s market territories.
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. Management believes that TrustCo’s earnings performance and strong capital position enable the Company to easily secure new sources of liquidity. 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. As noted, the Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. As previously stated, the Bank is a member of the FHLBNY and is an eligible borrower at the FRBNY and has the ability to borrow utilizing securities and/or loans as collateral at either institution. The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness. The Company uses an industry standard external model as the primary tool to identify, quantify and project changes in interest rates and prepayment speeds taken both from industry sources and internally generated data based upon historical trends in the Bank’s balance sheet. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in market interest rates are also incorporated into the model. This model calculates an economic or fair value amount with respect to non-time deposit categories since these deposits are part of the core deposit products of the Company. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure the fair value of capital or precisely predict the impact of fluctuations in interest rates on the fair value of capital.
Using this model, the fair value of capital projections as of SeptemberJune 30, 20172020 are referenced below. The base case (current rates) scenario shows the present estimate of the fair value of capital assuming no change in the operating environment or operating strategies and no change in interest rates from those existing in the marketplace as of SeptemberJune 30, 2017.2020. The table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase by 100 bp, 200 bp, 300 bp and 400 bp or to decrease by 100 bp.
As of SeptemberJune 30, 2017 2020 | | Estimated Percentage of Fair value of Capital to Fair value of Assets | | +400 BP | | | 19.8117.40 | % | +300 BP | | | 21.1017.60 | | +200 BP | | | 22.3717.70 | | +100 BP | | | 23.4118.00 | | Current rates | | | 23.8517.30 | | -100 BP | | | 21.5713.30 | |
Noninterest Income Total noninterest income for the thirdsecond quarter of 20172019 was $4.9$3.4 million compared to $4.7$4.9 million for the same period in the prior year. Financial services income was down $315 thousand to $1.4 million in the prior year period. The increasesecond quarter of $125 thousand was due to an increase in Financial Services income, offset by a decline in other income. There were no net gains on securities transactions in either period. The increase in Financial Services income was due2020 as compared to the settlementyear-ago period, primarily as a result of several estates in the third quarter of 2017 that generated more revenue than previously accrued for.lower asset market values under management. Fees for services to customers were up $103down $804 thousand over the same period in the prior year, period.primarily as a result of less overdraft fees. The fair value of assets under management was $876$880 million at SeptemberJune 30, 2017 and $8462020, $927.5 million as of December 31, 20162019, and $863$886 million at SeptemberJune 30, 2016.2019.
For the ninesix months through Septemberended June 30, 20172020 total noninterest income was $14.1$8.8 million, down $791 thousand compared to $14.5 million for the prior year period. The decline wasdecrease is also primarily the result of less financial services income as a result of lower asset market values under management, less fees for services to customers which is also driven by lower overdraft fees due to higher deposit balances, and a decreasegain on the sale of $668 thousandthe credit card portfolio in the second quarter of 2019, partially offset by a net gainsgain on securities transactions and a decrease of $549 in other income, offset by an increase of $663 thousand in Financial Services revenue, as noted previously.transactions.
Noninterest Expenses Total noninterest expenses were $23.5$23.9 million for the three monthsthree-months ended SeptemberJune 30, 2017,2020, compared to $23.0$24.9 million for the three monthsthree-months ended SeptemberJune 30, 20162019. Significant changes included a $1.4 million$379 thousand increase in salaries and benefits,net occupancy expense, offset by a $620$103 thousand decrease in equipment expense, a $386 thousand decrease in professional services, a $177 thousand decrease in advertising expense, a $242 thousand decrease in net other real estate costs(income) expense, and a $487$389 thousand decrease in other expenses. Full time equivalent headcount increased from 790was 858 as of SeptemberJune 30, 2016 to 8152019, 814 as of SeptemberDecember 31, 2019, and 806 as of June 30, 2017, which was a primary cause, along with the increase2020. The decrease in FTE’s in the market price of TrustCo shares,period presented was not due to the effects of the increasepandemic. The Company constantly hires qualified candidates and from time-to-time experiences fluctuations in salary and benefits expense.head count.
For the nine months through September 30, 2017 totalTotal noninterest expense was $70.5expenses were $48.2 million for both the third quarters of 2017 and 2016. Ansix-months ended June 30, 2020, compared to $49.8 million for the six-months ended June 30, 2019. Significant changes included an increase of $3.2 million$518 thousand in salaries and benefits wasnet occupancy expense, offset by a $203 thousand decrease in equipment expense, a $555 thousand decrease in professional services, a $474 thousand decrease in advertising expense, a decrease of $2.0 million decrease$343 thousand in FDIC and other insurance, expenses and a decrease of $1.1 million$497 thousand in other real estate expense. Changes in other categories were less significant.expenses. The overall decrease is primarily as result of the Company’s continued efforts to control costs.
Income Taxes In the thirdsecond quarter of 2017,2020, TrustCo recognized income tax expense of $7.4$3.9 million compared to $6.7$4.9 million for the thirdsecond quarter of 2016.2019. The effective tax rates were 36.9%25.8% and 37.9%25.0% for the thirdsecond quarters of 20172020 and 2016,2019, respectively. For the nine month periods through September 30,first six-months, income taxes increased $2.2were $8.2 million withand $9.5 million in 2020 and 2019, respectively. The effective tax rates were 25.1% and 24.6% of 37.3%2020 and 37.4%, respectively, for the nine months ended September 30, 2017 and 2016.2019, respectively.
Capital Resources Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios.
Banking regulators have moved towards higher required capital requirements due to the standards included in the Basel III reform measures and the Dodd-Frank Act, as well as a general trend towards reducing risk in the banking system by providing a greater capital margin.
Trustco Bank’s Agreement with the OCC requires the Bank to develop and comply with a capital plan, and the Bank may declare or pay a dividend or make a capital distribution only (a) when the Bank is in compliance with its approved written capital plan, and would remain in compliance with such capital plan immediately following the declaration or payment of any dividend or capital distribution and (b) following OCC approval under OCC capital distribution rules.
Total shareholders’ equity at SeptemberJune 30, 20172020 was $454.9$553.4 million compared to $435.6$515.6 million at SeptemberJune 30, 2016.2019. TrustCo declared a dividend of $0.065625$0.068125 per share in the thirdsecond quarter of 2017.2020. This results in a dividend payout ratio of 50.07%58.37% based on thirdsecond quarter 20172020 earnings of $12.6$11.3 million.
The Bank and the Company reported the following capital ratios as of SeptemberJune 30, 20172020 and December 31, 2016:2019:
(Bank Only) | | As of June 30, 2020 | | | Well | | | Minimum for Capital Adequacy plus Capital Conservation | | (dollars in thousands) | | Amount | | | Ratio | | | Capitalized(1) | | | Buffer (1)(2) | | | | | | | | | | | | | | | Tier 1 leverage ratio | | | 527,145 | | | | 9.603 | % | | | 5.000 | % | | | 4.000 | % | Common equity tier 1 capital | | | 527,145 | | | | 18.320 | | | | 6.500 | | | | 7.000 | | Tier 1 risk-based capital | | | 527,145 | | | | 18.320 | | | | 8.000 | | | | 8.500 | | Total risk-based capital | | | 563,265 | | | | 19.576 | | | | 10.000 | | | | 10.500 | |
| | As of December 31, 2019 | | | Well | | | Minimum for Capital Adequacy plus Capital Conservation | | (dollars in thousands) | | Amount | | | Ratio | | | Capitalized(1) | | | Buffer (1)(2) | | | | | | | | | | | | | | | Tier 1 leverage ratio | | $ | 516,775 | | | | 9.940 | % | | | 5.000 | % | | | 4.000 | % | Common equity tier 1 capital | | | 516,775 | | | | 18.412 | | | | 6.500 | | | | 7.000 | | Tier 1 risk-based capital | | | 516,775 | | | | 18.412 | | | | 8.000 | | | | 8.500 | | Total risk-based capital | | | 551,975 | | | | 19.666 | | | | 10.000 | | | | 10.500 | |
(Consolidated) | | | | | | | | | | | | As of June 30, 2020 | | | Minimum for Capital Adequacy plus Capital Conservation | | (dollars in thousands) | | Amount | | | Ratio | | | Buffer (1)(2) | | | | | | | | | | | | Tier 1 leverage ratio | | $ | 540,932 | | | | 9.852 | % | | | 4.000 | % | Common equity tier 1 capital | | | 540,932 | | | | 18.794 | | | | 7.000 | | Tier 1 risk-based capital | | | 540,932 | | | | 18.794 | | | | 8.500 | | Total risk-based capital | | | 577,061 | | | | 20.050 | | | | 10.500 | |
| | As of December 31, 2019 | | | Minimum for Capital Adequacy plus Capital Conservation | | (dollars in thousands) | | Amount | | | Ratio | | | Buffer (1)(2) | | | | | | | | | | | | Tier 1 leverage ratio | | $ | 533,243 | | | | 10.254 | % | | | 4.000 | % | Common equity Tier 1 capital | | | 533,243 | | | | 18.988 | | | | 7.000 | | Tier 1 risk-based capital | | | 533,243 | | | | 18.988 | | | | 8.500 | | Total risk-based capital | | | 568,463 | | | | 20.242 | | | | 10.500 | |
(Bank Only)(1) Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(dollars in thousands) | | | As of September 30, 2017 | | | | | | Adequately Capitalized(1)(2) | | | | | Amount | | Ratio | | | | | | | | | | | | | | | | | | | | | Tier 1 leverage capital | | $ | 443,310 | | | | 9.071 | % | | | 5.000 | % | | | 4.000 | % | Common equity tier 1 capital | | | 443,310 | | | | 17.763 | | | | 6.500 | | | | 5.750 | | Tier 1 risk-based capital | | | 443,310 | | | | 17.763 | | | | 8.000 | | | | 7.250 | | Total risk-based capital | | | 474,669 | | | | 19.019 | | | | 10.000 | | | | 9.250 | |
(dollars in thousands) | | As of December 31, 2016 | | | | Adequately Capitalized(1)(3) | | | | | Amount | | Ratio | | | | | | | | | | | | | | | | | | | | | Tier 1 (core) capital | | $ | 424,802 | | | | 8.829 | % | | | 5.000 | % | | | 4.000 | % | Common equity tier 1 capital | | | 424,802 | | | | 17.238 | | | | 6.500 | | | | 5.125 | | Tier 1 risk-based capital | | | 424,802 | | | | 17.238 | | | | 8.000 | | | | 6.625 | | Total risk-based capital | | | 455,772 | | | | 18.492 | | | | 10.000 | | | | 8.625 | |
(2) The June 30, 2020 and December 31, 2019 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent
(1) | Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized |
(2) | The September 30, 2017 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.25 percent |
(3) | The December 31, 2016 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 0.625 percent |
(dollars in thousands) | | As of September 30, 2017 | | | | Amount | | | Ratio | | | | | | | | | | | Tier 1 leverage capital | | $ | 457,434 | | | | 9.359 | % | Common equity tier 1 capital | | | 457,434 | | | | 18.319 | | Tier 1 risk-based capital | | | 457,434 | | | | 18.319 | | Total risk-based capital | | | 488,810 | | | | 19.576 | |
(dollars in thousands) | | | As of December 31, 2016 | | | | | Amount | | Ratio | | | | | | | | | | | Leverage capital | | $ | 438,426 | | | | 9.110 | % | Common equity tier 1 capital | | | 438,426 | | | | 17.782 | | Tier 1 risk-based capital | | | 438,426 | | | | 17.782 | | Total risk-based capital | | | 469,411 | | | | 19.038 | |
In addition, at SeptemberJune 30, 2017,2020, the consolidated equity to total assets ratio was 9.34%9.75%, compared to 8.89%10.43% at December 31, 20162019 and 9.05%9.86% at SeptemberJune 30, 2016.2019.
Both TrustCo and Trustco Bank are subject to regulatory capital requirements. On January 1, 2015, a new capital rule took effect that revised the federal bank regulatory agencies’ risk-based capital requirements and, for the first time, subjected the Company to consolidated regulatory capital requirements. Among other matters, the rule also established a new common equity Tier 1 minimum capital requirement of 4.5% of risk-weighted assets, increased the minimum Tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets, changed the risk-weightings of certain assets, and changed what qualifies as capital for purposes of meeting the various capital requirements. In addition, the Company and the Bank are required to maintain additional levels of Tier 1 common equity (the capital conservation buffer) over the minimum risk-based capital levels before they may pay dividends, repurchase shares, or pay discretionary bonuses. The new rule will bewas phased-in over several years and will beis fully in effect in 2019. Calendar year 2016 was the third year of implementation of the new capital rules. Prior to January 2015, the Company had not been subject to consolidated regulatory capital requirements.2020.
As of SeptemberJune 30, 2017,2020, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including ifwith the current (andand also if the fully phased-in)phased-in capital conservation buffer is taken into account. Under the OCC’sOffice of the Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well-capitalized” when its CET1, Tier 1, total risk-based, and leverage capital ratios are at least 6.5%, 8%, 10%, and 5%, respectively. A bank is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements. A bank is “significantly undercapitalized” if its CET1, Tier 1, total risk-based and leverage capital ratios fall below 3%, 4%, 6%, and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%. At SeptemberJune 30, 20172020 and 2016,2019, Trustco Bank met the definition of “well-capitalized.”
As noted, the Company’s dividend payout ratio was 50.07%58.37% of net income for the thirdsecond quarter of 20172020 and 57.40%44.94% of net income for the thirdsecond quarter of 2016.2019. The per-share dividend paid in both the third quarterssecond quarter of 20162020 and 20172019 was $0.065625.$0.068125. The Company’s ability to pay dividends to its shareholders is dependent upon the ability of the Bank to pay dividends to the Company. The payment of dividends by the Bank to the Company is subject to continued compliance with minimum regulatory capital requirements and the Bank’s compliance with the capital plan required under the terms of the Agreement. Under the OCC agreement, the Bank may declare or pay a dividend or make a capital distribution only (a) when the Bank is in compliance with its approved written capital plan, and would remain in compliance with such capital plan immediately following the declaration or payment of any dividend or capital distribution, and (b) following OCC approval under OCC capital distribution rules.requirements. The OCC may disapprove a dividend if: the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statue, regulation or agreement. In addition, under the Agreement, the payment of dividends by the Bank are subject to prior approval.
TrustCo maintains a dividend reinvestment plan (DRP) with approximately 12,00011,192 participants. The DRP allows participants to reinvest dividends in shares of the Company. The DRP also allows for additional purchases by participants and has a discount feature (up to a 5% for safe harbor provisions) that can be activated by management as a tool to raise capital. To date, the discount feature has not been utilized.
Share Repurchase Program On June 7, 2019 the Company’s Board of Directors authorized a share repurchase program of up to 1,000,000 shares. During the three months ended March 31, 2020, the Company repurchased a total of 489 thousand shares at an average price per share of $7.11 for a total of $3.5 million under its Board authorized share repurchase program. The shares purchased as of March 31, 2020 represent .51% of our common shares outstanding. On April 16, 2020 the Company announced that it has suspended its share repurchase program.
Critical Accounting Policies and Estimates Pursuant to Securities and Exchange Commission (SEC)(“SEC”) guidance, management of the Company is encouraged to evaluate and disclose those accounting policies judged to be critical policies -‑ those most important to the portrayal of the Company’s financial condition and results, and that require management’s most difficult subjective or complex judgments. Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover the inherent risk of losses in the loan portfolio and the material effect that such judgments can have on the results of operations. Included in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K10‑K for the year ended December 31, 20162019 is a description of the significant accounting policies that are utilized by the Company in the preparation of the Consolidated Financial Statements. Recent Accounting Pronouncements 58Please refer to Note 11 to the consolidated financial statements for a detailed discussion of new accounting pronouncements and their impact on the Company. As indicated in Note 11, as allowed by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) the Bank elected to delay the adoption of ASU 2016-13, “Financial Instruments – Credit Losses,” until the earlier of the termination of the national emergency concerning COVID-19 or December 31, 2020.
TrustCo Bank Corp NY Management’sManagement's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities. Included in the average balance of shareholders’shareholders' equity is the unrealized gain (loss) gain,, net of tax, in the available for sale portfolio of ($3.0)$8.2 million in 2020 and ($5.0) million in 2019. The subtotals contained in the following table are the arithmetic totals of the items contained in that category. Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.
(dollars in thousands) | | Three months ended June 30, 2020 | | | Three months ended June 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average Balance | | | Interest | | | Average Rate | | | Average Balance | | | Interest | | | Average Rate | | | Change in Interest Income/ | | | Variance Balance Change | | | Variance Rate Change | | Assets | | | | | | | | | | | | | | | | | | | | Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | | U. S. government sponsored enterprises | | $ | 23,291 | | | | 106 | | | | 1.83 | % | | $ | 160,197 | | | | 821 | | | | 2.05 | % | | $ | (715 | ) | | | (635 | ) | | | (80 | ) | Mortgage backed securities and collateralized mortgage obligations-residential | | | 333,122 | | | | 1,527 | | | | 1.83 | % | | | 342,678 | | | | 2,152 | | | | 2.51 | % | | | (625 | ) | | | (58 | ) | | | (567 | ) | State and political subdivisions | | | 110 | | | | 2 | | | | 7.90 | % | | | 168 | | | | 4 | | | | 9.52 | % | | | (2 | ) | | | (1 | ) | | | (1 | ) | Corporate bonds | | | 51,494 | | | | 488 | | | | 3.79 | % | | | 33,793 | | | | 272 | | | | 3.22 | % | | | 216 | | | | 161 | | | | 55 | | Small Business Administration-guaranteed participation securities | | | 45,260 | | | | 229 | | | | 2.03 | % | | | 54,254 | | | | 289 | | | | 2.13 | % | | | (60 | ) | | | (47 | ) | | | (13 | ) | Other | | | 685 | | | | 5 | | | | 2.92 | % | | | 686 | | | | 5 | | | | 2.92 | % | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total securities available for sale | | | 453,962 | | | | 2,357 | | | | 2.08 | % | | | 591,776 | | | | 3,543 | | | | 2.39 | % | | | (1,186 | ) | | | (580 | ) | | | (606 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal funds sold and other short-term Investments | | | 727,006 | | | | 193 | | | | 0.11 | % | | | 545,724 | | | | 3,282 | | | | 2.41 | % | | | (3,089 | ) | | | 5,684 | | | | (8,773 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held to maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Mortgage backed securities and collateralized mortgage obligations-residential | | | 17,199 | | | | 162 | | | | 3.75 | % | | | 21,155 | | | | 209 | | | | 3.95 | % | | | (47 | ) | | | (37 | ) | | | (10 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total held to maturity securities | | | 17,199 | | | | 162 | | | | 3.75 | % | | | 21,155 | | | | 209 | | | | 3.95 | % | | | (47 | ) | | | (37 | ) | | | (10 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal Reserve Bank and Federal Home Loan Bank stock | | | 9,332 | | | | 192 | | | | 8.23 | % | | | 9,173 | | | | 199 | | | | 8.68 | % | | | (7 | ) | | | 19 | | | | (26 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial loans | | | 223,002 | | | | 2,610 | | | | 4.68 | % | | | 189,870 | | | | 2,546 | | | | 5.36 | % | | | 64 | | | | 1,532 | | | | (1,468 | ) | Residential mortgage loans | | | 3,653,342 | | | | 36,365 | | | | 3.98 | % | | | 3,396,149 | | | | 35,179 | | | | 4.14 | % | | | 1,186 | | | | 7,981 | | | | (6,795 | ) | Home equity lines of credit | | | 260,029 | | | | 2,515 | | | | 3.89 | % | | | 279,622 | | | | 3,503 | | | | 5.01 | % | | | (988 | ) | | | (236 | ) | | | (752 | ) | Installment loans | | | 10,044 | | | | 175 | | | | 7.02 | % | | | 10,310 | | | | 204 | | | | 7.91 | % | | | (29 | ) | | | (5 | ) | | | (24 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans, net of unearned income | | | 4,146,417 | | | | 41,665 | | | | 4.02 | % | | | 3,875,951 | | | | 41,432 | | | | 4.28 | % | | | 233 | | | | 9,272 | | | | (9,039 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest earning assets | | | 5,353,916 | | | | 44,569 | | | | 3.33 | % | | | 5,043,779 | | | | 48,665 | | | | 3.86 | % | | | (4,096 | ) | | | 14,358 | | | | (18,454 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loan losses | | | (46,832 | ) | | | | | | | | | | | (44,841 | ) | | | | | | | | | | | | | | | | | | | | | Cash & non-interest earning assets | | | 195,815 | | | | | | | | | | | | 177,019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 5,502,899 | | | | | | | | | | | $ | 5,175,957 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities and shareholders' equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing checking accounts | | $ | 953,299 | | | | 26 | | | | 0.01 | % | | $ | 879,732 | | | | 94 | | | | 0.04 | % | | | (68 | ) | | | 46 | | | | (114 | ) | Money market accounts | | | 641,593 | | | | 862 | | | | 0.54 | % | | | 553,708 | | | | 1,119 | | | | 0.81 | % | | | (257 | ) | | | 882 | | | | (1,139 | ) | Savings | | | 1,167,844 | | | | 166 | | | | 0.06 | % | | | 1,138,107 | | | | 367 | | | | 0.13 | % | | | (201 | ) | | | 64 | | | | (265 | ) | Time deposits | | | 1,392,136 | | | | 5,599 | | | | 1.62 | % | | | 1,437,097 | | | | 7,512 | | | | 2.09 | % | | | (1,913 | ) | | | (234 | ) | | | (1,679 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing deposits | | | 4,154,872 | | | | 6,653 | | | | 0.64 | % | | | 4,008,644 | | | | 9,092 | | | | 0.91 | % | | | (2,439 | ) | | | 758 | | | | (3,197 | ) | Short-term borrowings | | | 172,834 | | | | 235 | | | | 0.55 | % | | | 162,690 | | | | 381 | | | | 0.94 | % | | | (146 | ) | | | 147 | | | | (293 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing liabilities | | | 4,327,706 | | | | 6,888 | | | | 0.64 | % | | | 4,171,334 | | | | 9,473 | | | | 0.91 | % | | | (2,585 | ) | | | 905 | | | | (3,490 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 548,178 | | | | | | | | | | | | 418,215 | | | | | | | | | | | | | | | | | | | | | | Other liabilities | | | 75,603 | | | | | | | | | | | | 79,056 | | | | | | | | | | | | | | | | | | | | | | Shareholders' equity | | | 551,412 | | | | | | | | | | | | 507,352 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders' equity | | $ | 5,502,899 | | | | | | | | | | | $ | 5,175,957 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income , tax equivalent | | | | | | | 37,681 | | | | | | | | | | | | 39,192 | | | | | | | $ | (1,511 | ) | | | 13,453 | | | | (14,964 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest spread | | | | | | | | | | | 2.69 | % | | | | | | | | | | | 2.95 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest margin (net interest income to total interest earning assets) | | | | | | | | | | | 2.81 | % | | | | | | | | | | | 3.11 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tax equivalent adjustment | | | | | | | - | | | | | | | | | | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income | | | | | | | 37,681 | | | | | | | | | | | | 39,191 | | | | | | | | | | | | | | | | | |
in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.65 | | Three months ended September 30, 2017 | | | Three months ended September 30, 2016 | | | | | | | | | | | (dollars in thousands) | | Average Balance | | | Interest | | | Average Rate | | | Average Balance | | | Interest | | | Average Rate | | | Change in Interest Income/ Expense | | | Variance Balance Change | | | Variance Rate Change | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | | U. S. government sponsored enterprises | | $ | 123,055 | | | | 465 | | | | 1.51 | % | | $ | 109,488 | | | | 408 | | | | 1.49 | % | | $ | 57 | | | | 51 | | | | 6 | | Mortgage backed securities and collateralized mortgage obligations-residential | | | 345,248 | | | | 1,815 | | | | 2.10 | % | | | 400,103 | | | | 1,829 | | | | 1.83 | % | | | (14 | ) | | | (1,053 | ) | | | 1,039 | | State and political subdivisions | | | 522 | | | | 11 | | | | 8.43 | % | | | 953 | | | | 20 | | | | 8.39 | % | | | (9 | ) | | | (10 | ) | | | 1 | | Corporate bonds | | | 42,528 | | | | 153 | | | | 1.44 | % | | | 27,161 | | | | 97 | | | | 1.43 | % | | | 56 | | | | - | | | | - | | Small Business Administration-guaranteed participation securities | | | 72,204 | | | | 380 | | | | 2.11 | % | | | 85,305 | | | | 445 | | | | 2.09 | % | | | (65 | ) | | | (87 | ) | | | 22 | | Mortgage backed securities and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | collateralized mortgage obligations-commercial | | | 9,918 | | | | 22 | | | | 0.89 | | | | 10,247 | | | | 36 | | | | 1.41 | | | | (14 | ) | | | (1 | ) | | | (13 | ) | Other | | | 685 | | | | 4 | | | | 2.34 | % | | | 685 | | | | 4 | | | | 2.34 | % | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total securities available for sale | | | 594,160 | | | | 2,850 | | | | 1.92 | % | | | 633,942 | | | | 2,839 | | | | 1.79 | % | | | 11 | | | | (1,099 | ) | | | 1,054 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal funds sold and other short-term Investments | | | 621,878 | | | | 1,927 | | | | 1.24 | % | | | 683,777 | | | | 866 | | | | 0.50 | % | | | 1,061 | | | | (522 | ) | | | 1,583 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held to maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate bonds | | | 6,738 | | | | 102 | | | | 6.06 | % | | | 10,644 | | | | 156 | | | | 5.86 | % | | | (54 | ) | | | (88 | ) | | | 34 | | Mortgage backed securities and collateralized mortgage obligations-residential | | | 30,161 | | | | 276 | | | | 3.66 | % | | | 39,307 | | | | 347 | | | | 3.53 | % | | | (71 | ) | | | (150 | ) | | | 79 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total held to maturity securities | | | 36,899 | | | | 378 | | | | 4.10 | % | | | 49,951 | | | | 503 | | | | 4.03 | % | | | (125 | ) | | | (237 | ) | | | 112 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal Reserve Bank and Federal Home Loan Bank stock | | | 9,117 | | | | 125 | | | | 5.48 | % | | | 9,579 | | | | 131 | | | | 5.47 | % | | | (6 | ) | | | (8 | ) | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial loans | | | 183,867 | | | | 2,482 | | | | 5.40 | % | | | 195,115 | | | | 2,597 | | | | 5.32 | % | | | (115 | ) | | | (338 | ) | | | 223 | | Residential mortgage loans | | | 3,035,745 | | | | 31,600 | | | | 4.16 | % | | | 2,819,343 | | | | 30,175 | | | | 4.28 | % | | | 1,425 | | | | 5,895 | | | | (4,470 | ) | Home equity lines of credit | | | 312,812 | | | | 3,237 | | | | 4.14 | % | | | 346,744 | | | | 3,211 | | | | 3.70 | % | | | 26 | | | | (1,365 | ) | | | 1,391 | | Installment loans | | | 8,096 | | | | 200 | | | | 9.88 | % | | | 8,331 | | | | 195 | | | | 9.36 | % | | | 5 | | | | (28 | ) | | | 33 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans, net of unearned income | | | 3,540,520 | | | | 37,519 | | | | 4.24 | % | | | 3,369,533 | | | | 36,178 | | | | 4.29 | % | | | 1,341 | | | | 4,165 | | | | (2,824 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest earning assets | | | 4,802,574 | | | | 42,799 | | | | 3.56 | % | | | 4,746,782 | | | | 40,517 | | | | 3.41 | % | | | 2,282 | | | | 2,298 | | | | (72 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loan losses | | | (44,284 | ) | | | | | | | | | | | (44,473 | ) | | | | | | | | | | | | | | | | | | | | | Cash & non-interest earning assets | | | 127,004 | | | | | | | | | | | | 137,462 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 4,885,294 | | | | | | | | | | | $ | 4,839,771 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing checking accounts | | $ | 861,387 | | | | 113 | | | | 0.05 | % | | $ | 780,058 | | | | 120 | | | | 0.06 | % | | | (7 | ) | | | 54 | | | | (61 | ) | Money market accounts | | | 572,168 | | | | 469 | | | | 0.33 | % | | | 571,333 | | | | 463 | | | | 0.32 | % | | | 6 | | | | 0 | | | | 6 | | Savings | | | 1,280,318 | | | | 435 | | | | 0.14 | % | | | 1,284,533 | | | | 504 | | | | 0.16 | % | | | (69 | ) | | | (1 | ) | | | (68 | ) | Time deposits | | | 1,078,085 | | | | 2,247 | | | | 0.83 | % | | | 1,176,115 | | | | 2,468 | | | | 0.84 | % | | | (221 | ) | | | (80 | ) | | | (141 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing deposits | | | 3,791,958 | | | | 3,264 | | | | 0.34 | % | | | 3,812,039 | | | | 3,555 | | | | 0.37 | % | | | (291 | ) | | | (27 | ) | | | (264 | ) | Short-term borrowings | | | 223,238 | | | | 345 | | | | 0.62 | % | | | 189,910 | | | | 281 | | | | 0.59 | % | | | 64 | | | | 50 | | | | 14 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing liabilities | | | 4,015,196 | | | | 3,609 | | | | 0.36 | % | | | 4,001,949 | | | | 3,836 | | | | 0.38 | % | | | (227 | ) | | | 23 | | | | (250 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 389,286 | | | | | | | | | | | | 377,455 | | | | | | | | | | | | | | | | | | | | | | Other liabilities | | | 28,809 | | | | | | | | | | | | 27,496 | | | | | | | | | | | | | | | | | | | | | | Shareholders’ equity | | | 452,003 | | | | | | | | | | | | 432,871 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | $ | 4,885,294 | | | | | | | | | | | $ | 4,839,771 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income , tax equivalent | | | | | | | 39,190 | | | | | | | | | | | | 36,681 | | | | | | | $ | 2,509 | | | | 2,275 | | | | 178 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest spread | | | | | | | | | | | 3.21 | % | | | | | | | | | | | 3.03 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest margin (net interest income to total interest earning assets) | | | | | | | | | | | 3.26 | % | | | | | | | | | | | 3.09 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tax equivalent adjustment | | | | | | | (11 | ) | | | | | | | | | | | (14 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income | | | | | | | 39,179 | | | | | | | | | | | | 36,667 | | | | | | | | | | | | | | | | | |
TrustCo Bank Corp NY Management’sManagement's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities. Included in the average balance of shareholders’shareholders' equity is the unrealized loss,gain (loss), net of tax, in the available for sale portfolio of ($4.2) million in 2017 and ($0.5)$6.6 million in 2016.2020 and ($7.1) million in 2019. The subtotals contained in the following table are the arithmetic totals of the items contained in that category. Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.
(dollars in thousands) | | | Six months ended June 30, 2020 | | | Six months ended June 30, 2019 | | | | | | | | | | | | | Nine months ended September 30, 2017 | | | Nine months ended September 30, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (dollars in thousands) | | Average Balance | | | Interest | | | Average Rate | | | Average Balance | | | Interest | | | Average Rate | | | Change in Interest Income/ Expense | | | Variance Balance Change | | | Variance Rate Change | | | | | | Average Balance | | | Interest | | | Average Rate | | | Average Balance | | | Interest | | | Average Rate | | | Change in Interest Income/ | | | Variance Balance Change | | | Variance Rate Change | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U. S. government sponsored enterprises | | $ | 139,629 | | | | 1,667 | | | | 1.59 | % | | $ | 97,281 | | | | 1,067 | | | | 1.46 | % | | $ | 600 | | | | 497 | | | | 103 | | | $ | 57,830 | | | | 527 | | | | 1.82 | % | | $ | 157,244 | | | | 1,604 | | | | 2.04 | % | | $ | (1,077 | ) | | | (920 | ) | | | (157 | ) | Mortgage backed securities and collateralized mortgage obligations-residential | | | 357,347 | | | | 5,717 | | | | 2.13 | % | | | 419,185 | | | | 6,114 | | | | 1.94 | % | | | (397 | ) | | | (1,204 | ) | | | 807 | | | | 352,445 | | | | 3,640 | | | | 2.07 | % | | | 308,034 | | | | 3,707 | | | | 2.41 | % | | | (67 | ) | | | 1,025 | | | | (1,092 | ) | State and political subdivisions | | | 736 | | | | 41 | | | | 7.43 | % | | | 1,007 | | | | 60 | | | | 7.94 | % | | | (19 | ) | | | (11 | ) | | | (8 | ) | | | 112 | | | | 4 | | | | 7.74 | % | | | 168 | | | | 6 | | | | 7.14 | % | | | (2 | ) | | | (3 | ) | | | 1 | | Corporate bonds | | | 42,272 | | | | 458 | | | | 1.44 | % | | | 9,120 | | | | 97 | | | | 1.42 | % | | | 361 | | | | 359 | | | | 2 | | | | 39,913 | | | | 726 | | | | 3.64 | % | | | 30,347 | | | | 480 | | | | 3.16 | % | | | 246 | | | | 166 | | | | 80 | | Small Business Administration-guaranteed participation securities | | | 75,429 | | | | 1,189 | | | | 2.10 | % | | | 87,896 | | | | 1,371 | | | | 2.08 | % | | | (182 | ) | | | (205 | ) | | | 23 | | | | 46,339 | | | | 474 | | | | 2.05 | % | | | 55,648 | | | | 586 | | | | 2.11 | % | | | (112 | ) | | | (96 | ) | | | (16 | ) | Mortgage backed securities and collateralized mortgage obligations-commercial | | | 10,003 | | | | 66 | | | | 0.88 | % | | | 10,320 | | | | 110 | | | | 1.42 | % | | | (44 | ) | | | (3 | ) | | | (41 | ) | | Other | | | 685 | | | | 12 | | | | 2.34 | % | | | 683 | | | | 12 | | | | 2.34 | % | | | - | | | | - | | | | - | | | | 685 | | | | 11 | | | | 3.21 | % | | | 685 | | | | 10 | | | | 2.92 | % | | | 1 | | | | - | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total securities available for sale | | | 626,101 | | | | 9,150 | | | | 1.95 | % | | | 625,492 | | | | 8,831 | | | | 1.88 | % | | | 319 | | | | (567 | ) | | | 886 | | | | 497,324 | | | | 5,382 | | | | 2.16 | % | | | 552,126 | | | | 6,393 | | | | 2.32 | % | | | (1,011 | ) | | | 172 | | | | (1,183 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal funds sold and other short-term Investments | | | 635,450 | | | | 4,900 | | | | 1.03 | % | | | 675,948 | | | | 2,542 | | | | 0.50 | % | | | 2,358 | | | | (256 | ) | | | 2,614 | | | | 569,541 | | | | 1,460 | | | | 0.52 | % | | | 524,468 | | | | 6,291 | | | | 2.40 | % | | | (4,831 | ) | | | 1,472 | | | | (6,303 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held to maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate bonds | | | 8,897 | | | | 410 | | | | 6.14 | % | | | 10,202 | | | | 464 | | | | 6.06 | % | | | (54 | ) | | | (64 | ) | | | 10 | | | Mortgage backed securities and collateralized mortgage obligations-residential | | | 32,202 | | | | 888 | | | | 3.68 | % | | | 42,192 | | | | 1,123 | | | | 3.55 | % | | | (235 | ) | | | (297 | ) | | | 62 | | | | 17,671 | | | | 337 | | | | 3.81 | % | | | 21,594 | | | | 426 | | | | 3.95 | % | | | (89 | ) | | | (74 | ) | | | (15 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total held to maturity securities | | | 41,099 | | | | 1,298 | | | | 4.21 | % | | | 52,394 | | | | 1,587 | | | | 4.04 | % | | | (289 | ) | | | (361 | ) | | | 72 | | | | 17,671 | | | | 337 | | | | 3.81 | % | | | 21,594 | | | | 426 | | | | 3.95 | % | | | (89 | ) | | | (74 | ) | | | (15 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal Reserve Bank and Federal Home Loan Bank stock | | | 9,467 | | | | 393 | | | | 5.54 | % | | | 9,545 | | | | 369 | | | | 5.15 | % | | | 24 | | | | (5 | ) | | | 29 | | | | 9,258 | | | | 274 | | | | 5.92 | % | | | 9,064 | | | | 284 | | | | 6.27 | % | | | (10 | ) | | | 15 | | | | (25 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial loans | | | 184,932 | | | | 7,313 | | | | 5.27 | % | | | 198,461 | | | | 7,777 | | | | 5.22 | % | | | (464 | ) | | | (586 | ) | | | 122 | | | | 210,524 | | | | 5,152 | | | | 4.89 | % | | | 191,793 | | | | 5,129 | | | | 5.35 | % | | | 23 | | | | 951 | | | | (928 | ) | Residential mortgage loans | | | 2,969,363 | | | | 92,910 | | | | 4.17 | % | | | 2,768,579 | | | | 89,523 | | | | 4.31 | % | | | 3,387 | | | | 7,652 | | | | (4,265 | ) | | | 3,627,535 | | | | 72,826 | | | | 4.02 | % | | | 3,385,628 | | | | 70,043 | | | | 4.14 | % | | | 2,783 | | | | 7,760 | | | | (4,977 | ) | Home equity lines of credit | | | 321,276 | | | | 9,453 | | | | 3.92 | % | | | 353,461 | | | | 9,569 | | | | 3.61 | % | | | (116 | ) | | | (1,193 | ) | | | 1,077 | | | | 262,745 | | | | 5,383 | | | | 4.12 | % | | | 282,892 | | | | 7,040 | | | | 4.98 | % | | | (1,657 | ) | | | (484 | ) | | | (1,173 | ) | Installment loans | | | 8,117 | | | | 563 | | | | 9.25 | % | | | 8,435 | | | | 579 | | | | 9.15 | % | | | (16 | ) | | | (22 | ) | | | 6 | | | | 10,380 | | | | 367 | | | | 7.11 | % | | | 11,099 | | | | 473 | | | | 8.52 | % | | | (106 | ) | | | (30 | ) | | | (76 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans, net of unearned income | | | 3,483,688 | | | | 110,239 | | | | 4.22 | % | | | 3,328,936 | | | | 107,448 | | | | 4.30 | % | | | 2,791 | | | | 5,850 | | | | (3,059 | ) | | | 4,111,184 | | | | 83,728 | | | | 4.08 | % | | | 3,871,412 | | | | 82,685 | | | | 4.27 | % | | | 1,043 | | | | 8,198 | | | | (7,155 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest earning assets | | | 4,795,805 | | | | 125,980 | | | | 3.50 | % | | | 4,692,315 | | | | 120,777 | | | | 3.43 | % | | | 5,203 | | | | 4,660 | | | | 543 | | | | 5,204,978 | | | | 91,181 | | | | 3.51 | % | | | 4,978,664 | | | | 96,079 | | | | 3.86 | % | | | (4,898 | ) | | | 9,783 | | | | (14,681 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loan losses | | | (44,317 | ) | | | | | | | | | | | (44,832 | ) | | | | | | | | | | | | | | | | | | | | | | | (45,676 | ) | | | | | | | | | | | (44,894 | ) | | | | | | | | | | | | | | | | | | | | | Cash & non-interest earning assets | | | 129,384 | | | | | | | | | | | | 136,584 | | | | | | | | | | | | | | | | | | | | | | | | 194,718 | | | | | | | | | | | | 176,518 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 4,880,872 | | | | | | | | | | | $ | 4,784,067 | | | | | | | | | | | | | | | | | | | | | | | $ | 5,354,020 | | | | | | | | | | | $ | 5,110,288 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities and shareholders' equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing checking accounts | | $ | 840,322 | | | | 371 | | | | 0.06 | % | | $ | 758,314 | | | | 350 | | | | 0.06 | % | | | 21 | | | | 44 | | | | (23 | ) | | $ | 912,226 | | | | 42 | | | | 0.01 | % | | $ | 880,101 | | | | 215 | | | | 0.05 | % | | | (173 | ) | | | 23 | | | | (196 | ) | Money market accounts | | | 576,518 | | | | 1,403 | | | | 0.32 | % | | | 585,019 | | | | 1,426 | | | | 0.33 | % | | | (23 | ) | | | (21 | ) | | | (2 | ) | | | 627,897 | | | | 1,958 | | | | 0.63 | % | | | 535,950 | | | | 1,945 | | | | 0.73 | % | | | 13 | | | | 603 | | | | (590 | ) | Savings | | | 1,280,473 | | | | 1,300 | | | | 0.14 | % | | | 1,273,565 | | | | 1,712 | | | | 0.18 | % | | | (412 | ) | | | 16 | | | | (428 | ) | | | 1,142,201 | | | | 399 | | | | 0.07 | % | | | 1,149,064 | | | | 744 | | | | 0.13 | % | | | (345 | ) | | | (4 | ) | | | (341 | ) | Time deposits | | | 1,104,731 | | | | 6,711 | | | | 0.81 | % | | | 1,162,603 | | | | 7,301 | | | | 0.84 | % | | | (590 | ) | | | (343 | ) | | | (247 | ) | | | 1,381,025 | | | | 11,990 | | | | 1.75 | % | | | 1,395,361 | | | | 13,488 | | | | 1.93 | % | | | (1,498 | ) | | | (149 | ) | | | (1,349 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing deposits | | | 3,802,044 | | | | 9,785 | | | | 0.34 | % | | | 3,779,501 | | | | 10,789 | | | | 0.38 | % | | | (1,004 | ) | | | (304 | ) | | | (700 | ) | | | 4,063,349 | | | | 14,389 | | | | 0.71 | % | | | 3,960,476 | | | | 16,392 | | | | 0.83 | % | | | (2,003 | ) | | | 473 | | | | (2,476 | ) | Short-term borrowings | | | 226,447 | | | | 1,043 | | | | 0.61 | % | | | 182,453 | | | | 800 | | | | 0.58 | % | | | 243 | | | | 196 | | | | 47 | | | | 163,251 | | | | 557 | | | | 0.69 | % | | | 160,893 | | | | 762 | | | | 0.95 | % | | | (205 | ) | | | 32 | | | | (237 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing liabilities | | | 4,028,491 | | | | 10,828 | | | | 0.36 | % | | | 3,961,954 | | | | 11,589 | | | | 0.39 | % | | | (761 | ) | | | (108 | ) | | | (653 | ) | | | 4,226,600 | | | | 14,946 | | | | 0.71 | % | | | 4,121,369 | | | | 17,154 | | | | 0.83 | % | | | (2,208 | ) | | | 505 | | | | (2,713 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 380,216 | | | | | | | | | | | | 368,852 | | | | | | | | | | | | | | | | | | | | | | | | 503,327 | | | | | | | | | | | | 407,926 | | | | | | | | | | | | | | | | | | | | | | Other liabilities | | | 27,880 | | | | | | | | | | | | 27,179 | | | | | | | | | | | | | | | | | | | | | | | | 77,303 | | | | | | | | | | | | 79,814 | | | | | | | | | | | | | | | | | | | | | | Shareholders’ equity | | | 444,285 | | | | | | | | | | | | 426,082 | | | | | | | | | | | | | | | | | | | | | | | Shareholders' equity | | | | 546,790 | | | | | | | | | | | | 501,179 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | $ | 4,880,872 | | | | | | | | | | | $ | 4,784,067 | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders' equity | | | $ | 5,354,020 | | | | | | | | | | | $ | 5,110,288 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income , tax equivalent | | | | | | | 115,152 | | | | | | | | | | | | 109,188 | | | | | | | $ | 5,964 | | | | 4,768 | | | | 1,196 | | | | | | | | 76,235 | | | | | | | | | | | | 78,925 | | | | | | | $ | (2,690 | ) | | | 9,278 | | | | (11,968 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest spread | | | | | | | | | | | 3.14 | % | | | | | | | | | | | 3.04 | % | | | | | | | | | | | | | | | | | | | | | | | 2.80 | % | | | | | | | | | | | 3.03 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest margin (net interest income to total interest earning assets) | | | | | | | | | | | 3.20 | % | | | | | | | | | | | 3.10 | % | | | | | | | | | | | | | | | | | | | | | | | 2.93 | % | | | | | | | | | | | 3.17 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tax equivalent adjustment | | | | | | | (32 | ) | | | | | | | | | | | (40 | ) | | | | | | | | | | | | | | | | | | | | | | | (1 | ) | | | | | | | | | | | (2 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income | | | | | | | 115,120 | | | | | | | | | | | | 109,148 | | | | | | | | | | | | | | | | | | | | | | | | 76,234 | | | | | | | | | | | | 78,923 | | | | | | | | | | | | | | | | | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
As detailed in the Annual Report to Shareholders as of December 31, 2016,2019, the Company is subject to interest rate risk as its principal market risk. As noted in the Management’s Discussion and Analysis for the threethree-month and ninesix-month month periods ended SeptemberJune 30, 20172020 and 2016,2019, the Company continues to respond to changes in interest rates in such a way that positions the Company to meet short term earning goals and also allows the Company to respond to changes in interest rates in the future. Consequently, for the thirdsecond quarter of 2017,2020, the Company had an average balance of Federal Funds sold and other short-term investments of $621.9$727.0 million compared to $683.8 million$545.7million in the thirdsecond quarter of 2016.2019. As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short-term investment portfolio into the securities available for sale, securities held to maturity and loan portfolios. Additional disclosure of interest rate risk can be found under “Liquidity and Interest Rate Sensitivity” and “Asset/Liability Management” in the Management’s Discussion and Analysis section of this document.
Market disruptions brought about by the COVID-19 pandemic may adversely affect our sensitivity to market interest rates. We could experience an increase in the cost of funding on our balance sheet. We could also experience increased pricing competition for our existing loans or future borrower prospects, which could decrease rates earned on our earning assets.
Item 4. | Controls and Procedures |
An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report.
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon this evaluation of those disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer of the Company concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.
In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, no evaluation of a cost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.
There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter to which this report relates that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting.
There were no material changes to the risk factors as previously disclosed in response to Item 1A to Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019, or in response to Item 1A to Part II of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Share Repurchase Program
None.
The following table provides certain information with respect to the Company’s purchases of its common shares during the three months ended June 30, 2020: Item 3. | Defaults Upon Senior Securities |
None.
None.
None.
Period | Reg S-K (Item 601)Total
Exhibit No.numbers
of shares purchased | DescriptionAverage price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs (1) | April 1, 2020 through April 30, 2020 | - | N/A | - | - | 15May 1, 2020 through May 31, 2020 | Crowe Horwath LLP Letter Regarding Unaudited Interim Financial Information- | N/A | - | - | June 1, 2020 through June 30, 2020 | - | N/A | - | - | 31(a)Total | Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer.- | N/A | - | 511,000 | | | 31(b) | Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer. | | | 32 | Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer. |
| | 101.INS(1) | Instance Document | | | 101.SCH | XBRL Taxonomy Extension Schema Document | | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | | 101.PRE | XBRLTaxonomy Extension Presentation Linkbase DocumentOn June 7, 2019, the Company announced that its board of directors approved a stock repurchase program under which the Company was authorized to repurchase over the following twelve months up to 1,000,000 shares of Company common stock, or approximately 1% of its outstanding shares. The Company commenced repurchases under the program during the quarter ended March 31, 2020. On April 16, 2020, the Company announced that it had chosen to suspend the repurchase program. |
SIGNATURES
Pursuant to the requirements 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.
Item 3. | TrustCo Bank Corp NY | | | | By: /s/ Robert J. McCormick
| | | Robert J. McCormick | | President and Chief Executive OfficerDefaults Upon Senior Securities |
None.
Item 4. | By: /s/ Michael M. Ozimek
| | | Michael M. Ozimek | | Senior Vice President and Chief Financial OfficerMine Safety |
Date: November 7, 2017None.
None.
Exhibits Index
Reg S-K (Item 601) | | Exhibit No. | Description | | | | Crowe Horwath LLP Letter Regarding Unaudited Interim Financial Information | | | | Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer. | | | | Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer. | | | | Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer. | | | 101.INS | Instance Document | | | 101.SCH | XBRL Taxonomy Extension Schema Document | | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | | 101.PRE | XBRLTaxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements 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 | | | | | | By: /s/ Robert J. McCormick | | | Robert J. McCormick | | | Chairman, President and Chief Executive Officer | | | | | | By: /s/ Michael M. Ozimek | | | Michael M. Ozimek | | | Executive Vice President and Chief Financial Officer | | | | | Date: August 6, 2020 | | |
|