| Item 2. | Management'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 with the Securities and Exchange Commission, in TrustCo’s press releases, and in oral statements made with the approval of an authorized executive officer, including statements regarding the effect of the COVID-19 pandemic on our business and macroeconomic or geopolitical concerns related to inflation and rising interest rates, 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 such as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. 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 any factors described under Part II, Item 1A, Risk Factors, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2021, the 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. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the effects of the COVID-19 pandemic and macroeconomic or geopolitical concerns related to inflation, rising interest rates and the war in Ukraine.
| • | changes in local market areas and general business and economic trends, as well as changes in consumer spending, borrowing and savings habits; and our ability to assess and react effectively to such changes; |
| • | the effects of the COVID-19 pandemic, which could cause, and in some instances has, caused us to experience a decline in the demand for products and services; an increase in loan delinquencies; problem assets and foreclosures; a decline in collateral value; work force shortages, or other interruption or the unavailability of key employees; an increase in the allowance for credit losses on loans; a reduction in wealth management revenues; an increase in Federal Deposit Insurance Corporation premiums; a reduction in the value of the securities portfolio; or a decline in the net worth and liquidity of loan guarantors; |
| • | the impact of hurricanes, including Hurricane Ian, and other severe weather events on the communities we serve, which could have an adverse impact on our business and results of operation; |
| • | changes in and uncertainty related to benchmark interest rates used to price loans and deposits; |
| • | credit risks and risks from concentrations (by geographic area and by loan product) within our loan portfolio; |
| • | 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 continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income; |
| • | 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 credit losses; |
| • | 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; |
| • | 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; |
| • | 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 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; |
| • | 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 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; |
| • | changes in management personnel; |
| • | real estate and collateral values; |
| • | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, Financial Accounting Standards Board 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; |
| • | technological changes and electronic, cyber and physical security breaches; |
| • | TrustCo’s success at managing the risks involved in the foregoing and managing its business; |
| • | Risks related to climate change; and |
| • | other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2021, as well as risks and uncertainties, if any, discussed elsewhere in this Form 10-Q and in our other filings made from time to time with the SEC, or in materials incorporated therein by reference. |
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 management discussion and analysis are the tables "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of TrustCo's average interest earning assets and interest bearing liabilities for the three month and nine month periods ended September 30, 2022 and 2021.
Introduction
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month and nine month periods ended September 30, 2022, with comparisons to the corresponding period in 2021, 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 Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 25, 2022 (the “2021 Form 10-K”), 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's presentation.
COVID-19 Impact
The Company evaluated the impact of the effects of the COVID-19 pandemic and determined that there were no material or systematic adverse impacts on the Company’s balance sheets and results of operations as of and for the years ended December 31, 2021 and 2020, as well as for the three month and nine month periods ended September 30, 2022 and 2021. At this time, it is difficult to quantify the impact the pandemic will have on future periods due to various uncertainties, including the duration, severity, spread, variants and resurgences of COVID-19.
The following is a description of the impact the COVID-19 global pandemic is having on certain elements of our business:
Paycheck Protection Program (“PPP”) and Liquidity
As part of the CARES Act, the Small Business Administration (SBA) was authorized to guarantee loans under the PPP for small businesses that meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company has received loan origination fees from the SBA which are being recognized over the life of the loan using the effective yield method. As of September 30, 2022, TrustCo’s PPP loans outstanding totaled $1.4 million.
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 credit losses
| • | See “Allowance for Credit Losses on Loans” for more information. |
Economic Overview
During the third quarter of 2022, financial markets declined for the third consecutive quarter as the economy continued to feel the impact from several economic areas, as well as reacting to global concerns. Ongoing inflationary pressures, higher interest rates, pandemic concerns, supply-chain bottlenecks, the war in Ukraine and higher Treasury yields, continued to place worries on investors. For the third quarter of 2022, the S&P 500 Index was down 5.28% and the Dow Jones Industrial Average was down 6.66%. This consecutive quarter decline in 2022 comes after the economy saw continued improvement throughout 2021. The 10‑year Treasury bond averaged 3.10% during Q3 2022 compared to 2.93% in Q2 2022, an increase of 17 basis points. The 2‑year Treasury bond average rate increased 66 basis points to 3.38%. Consequently, the spread between the 10‑year and the 2-year Treasury bonds decreased from 0.21% on average in Q2 to -0.28% in Q3 resulting in an inverted yield curve. Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer term rates. The target Federal Funds rate increased 25 basis points in March 2022, 50 basis points in May 2022, 75 basis points in June 2022, 75 basis points in July 2022, 75 basis points in September 2022, and another 75 basis points in November 2022 to arrive at 3.75% to 4.00%, the highest rate since 2007, with additional rate increases anticipated. Changes in interest rates could have an effect on interest-earning assets such as loans, investment securities, and cash balances, and also have an effect on interest-bearing liabilities primarily deposits and short-term borrowings. Additionally, unrealized gains and losses on available for sale securities, demand for products, borrowers ability to repay loans, and the number of delinquencies could also be effected. Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, have widened compared to the levels seen in recent years. Accordingly, changes in rates and spreads continue to be affected by the pandemic and global economic concerns.
| | | | 3 Month Yield (%) | 2 Year Yield (%) | 5 Year Yield (%) | 10 Year Yield (%) | 10 - 2 Year Spread (%) |
| | | | | | | | |
| Q3/21 | | Beg of Q3 | 0.05 | 0.25 | 0.87 | 1.45 | 1.20 |
| | Peak | 0.07 | 0.31 | 1.02 | 1.55 | 1.25 |
| | Trough | 0.03 | 0.17 | 0.65 | 1.19 | 0.98 |
| | End of Q3 | 0.04 | 0.28 | 0.98 | 1.52 | 1.24 |
| | Average in Q3 | 0.05 | 0.23 | 0.80 | 1.32 | 1.10 |
| | | | | | | | |
| Q4/21 | | Beg of Q4 | 0.04 | 0.28 | 0.98 | 1.52 | 1.24 |
| | Peak | 0.08 | 0.76 | 1.34 | 1.68 | 1.29 |
| | Trough | 0.04 | 0.27 | 0.93 | 1.35 | 0.72 |
| | End of Q4 | 0.06 | 0.73 | 1.26 | 1.52 | 0.79 |
| | Average in Q4 | 0.05 | 0.53 | 1.18 | 1.53 | 1.00 |
| | | | | | | | |
| Q1/22 | | Beg of Q1 | 0.06 | 0.73 | 1.26 | 1.52 | 0.79 |
| | Peak | 0.59 | 2.35 | 2.55 | 2.48 | 0.89 |
| | Trough | 0.08 | 0.77 | 1.37 | 1.63 | 0.04 |
| | End of Q1 | 0.52 | 2.28 | 2.42 | 2.32 | 0.04 |
| | Average in Q1 | 0.31 | 1.46 | 1.83 | 1.95 | 0.49 |
| | | | | | | | |
| Q2/22 | | Beg of Q2 | 0.52 | 2.28 | 2.42 | 2.32 | 0.04 |
| | Peak | 1.83 | 3.45 | 3.61 | 3.49 | 0.44 |
| | Trough | 0.53 | 2.37 | 2.55 | 2.39 | -0.05 |
| | End of Q2 | 1.72 | 2.92 | 3.01 | 2.98 | 0.06 |
| | Average in Q2 | 1.10 | 2.72 | 2.95 | 2.93 | 0.21 |
| | | | | | | | |
| Q3/22 | | Beg of Q3 | 1.72 | 2.92 | 3.01 | 2.98 | 0.06 |
| | Peak | 3.40 | 4.30 | 4.21 | 3.97 | 0.04 |
| | Trough | 1.73 | 2.82 | 2.66 | 2.60 | -0.51 |
| | End of Q3 | 3.33 | 4.22 | 4.06 | 3.83 | -0.39 |
| | Average in Q3 | 2.75 | 3.38 | 3.23 | 3.10 | -0.28 |
The United States economy experienced several areas of concern as 2022 began after experiencing significant progress throughout 2021. Economic conditions can 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.
TrustCo believes that its long-term focus on traditional banking services and practices historically has enabled the Company to avoid significant impact from asset quality problems, and that the Company’s strong liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice. Management believes that TrustCo has not engaged in the types of high risk loans and investments that led to the widely reported problems in the industry during the 2007-2009 financial crisis. Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to historical levels from time to time.
Should 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 or other reasons, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.
Financial Overview
TrustCo recorded net income of $19.4 million, or $1.013 of diluted earnings per share, for the three months ended September 30, 2022, compared to net income of $16.8 million, or $0.871 of diluted earnings per share, in the same period in 2021. Return on average assets was 1.24% and 1.08%, respectively, for the three-months ended September 30, 2022 and 2021. Return on average equity was 12.78% and 11.40%, respectively, for the three-months ended September 30, 2022 and 2021.
The primary factors accounting for the change in net income for the three months ended September 30, 2022 compared to the same period of the prior year were:
| • | An increase in income of $7.4 million from interest earning assets and a decrease in interest expense of $527 thousand from interest bearing liabilities, resulting in an increase in taxable equivalent net interest income in the third quarter of 2022 compared to the third quarter of 2021 of $7.9 million. |
| • | An increase of $2.9 million in provision for credit losses on loans primarily as a result of the ongoing uncertainty surrounding economic conditions and credit risk metrics. An increase of $200 thousand in unfunded commitments for the third quarter of 2022 compared to the third quarter 2021 primarily as a result of an increase in unfunded loan commitments. |
| • | An increase of $1.4 million in noninterest expense for the third quarter of 2022 compared to the third quarter 2021, primarily as a result of an increase in salaries and employee benefits, net occupancy expense, outsourced services, advertising expense and other expenses. |
TrustCo recorded net income of $54.3 million, or $2.835 of diluted earnings per share, for the nine‑months ended September 30, 2022, compared to net income of $45.3 million, or $2.349 of diluted earnings per share, in the same period in 2021. Return on average assets was 1.17% and 1.00%, respectively, for the nine-months ended September 30, 2022 and 2021. Return on average equity was 12.16% and 10.50%, respectively, for the nine-months ended September 30, 2022 and 2021.
Asset/Liability Management
The Company strives to generate its earnings capabilities through a mix of core deposits funding a prudent mix of interest 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, in 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 2021 Form 10-K is a description of the effect interest rates had on the results for the year 2021 compared to 2020. Many of the same market factors discussed in the 2021 Form 10-K continued to have a significant impact on results through the third quarter of 2022, as well as the economic effect of COVID-19 and heightened global concerns.
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 control national economic policy is the “Federal Funds” rate. This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating. Beginning in the second half of 2019, the Federal Reserve Board began lowering the rate in response to a slowing economy. During the first quarter of 2020 the rate was significantly decreased again to 0.00% to 0.25% as a result of the COVID-19 pandemic. The Federal Reserve Board increased the rate in March 2022, May 2022, June 2022, July 2022 and again in September 2022 to end the third quarter at 3.00% to 3.25% in order to address inflationary concerns, with additional rate increases anticipated.
The interest rate on the 10-year Treasury bond and other long-term interest rates have significant impact on the rates for new residential real estate loans. These changes in interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and other short-term investments as well as the interest expense on deposits and borrowings. Residential real estate loans and longer-term investments are most affected by the changes in longer term market interest rates such as the 10‑year Treasury. The 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 the recorded balance of the securities available for sale portfolio, which are recorded at fair value. Generally, as market interest rates increase, the fair value of the 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. Because TrustCo is a portfolio lender and does not sell loans into the secondary market, the Company 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. Higher market interest 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 longer‑term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury. The 10‑year Treasury yield increased 0.17 basis points, on average, during the third quarter of 2022 compared to the second quarter of 2022 and increased 1.78 basis points as compared to the third quarter of 2021.
While TrustCo has been affected by changes in financial markets over time, the impacts 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. Management believes that 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 extensive branch network. The Company expects that growth to be profitable. Additionally, the current interest rate environment has improved 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 third quarter of 2022, the net interest margin was 3.16%, up 51 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 decreased by $247.8 million while the average yield increased 209 basis points in the third quarter of 2022 compared to the same period in 2021. The increase in the average yield was a result of increases in the Federal Funds target rate during 2022 and was more than enough to offset the decrease in the average balance of Federal Funds sold. |
| • | The average balance of securities available for sale increased by $67.6 million and the average yield also increased 76 basis points to 2.12%. The increase in the average yield was primarily a result of higher bond yields on purchases throughout the year due to the changing interest rate environment. |
| • | The average loan portfolio grew by $213.5 million to $4.59 billion and the average yield decreased 4 basis points to 3.57% in the third quarter of 2022 compared to the same period in 2021. The average yield decreased primarily as a result of lower loan origination rates while rates remained low before the recent increases by the Federal Reserve Board, as well as the timing of PPP loan origination fees. |
| • | The average balance of interest bearing liabilities decreased $76.0 million and the average rate paid decreased 4 basis points to 0.11% in the third quarter of 2022 compared to the same period in 2021. Prior to the recent interest rate increases, time deposits were repricing at lower rates which drove down the rate paid on interest bearing liabilities. As time deposits reprice to current market rates we expect an increase in the average paid on interest bearing liabilities. |
During the third quarter of 2022, 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. We continue to face significant competition in the Company’s market areas.
The strategy on the funding side of the balance sheet was to offer competitive shorter term rates which allowed the Bank to remain competitive in the markets we serve. This strategy drove deposit growth at a relatively low cost that management believes should sustain TrustCo’s strong liquidity position and continue to allow us to cross sell new relationships and take advantage of opportunities as they arise. A significant portion of the Bank’s time deposits repriced during the last year while interest rates remained low. However, the Bank continues to monitor the recent Federal Funds target rate increases and the effects it is having on deposit rates. Continued increases in rates by the Federal Reserve Board will more than likely cause an increase in rates on interest bearing liabilities.
Earning Assets
Total average interest earning assets increased from $6.01 billion in the third quarter of 2021 to $6.04 billion in the same period of 2022 with an average yield of 3.24% in the third quarter of 2022 and 2.77% in the third quarter of 2021. The mix of assets invested in Federal Funds sold and other short-term investments decreased while loans and securities available for sale increased over the prior year period. Interest income on average earning assets increased from $41.7 million in the third quarter of 2021 to $49.0 million in the third quarter of 2022, on a tax equivalent basis. This increase was primarily driven by the higher interest rates on Federal Funds sold and other short-term investments and securities available for sale, which resulted from the increases in the Federal Funds target rate throughout 2022, and also from interest income on loans due to increased volume of originations year over year.
Loans
The average balance of loans was $4.59 billion in the third quarter of 2022 and $4.37 billion in the comparable period in 2021, and the yield on loans was down 4 basis points to 3.57%. Interest income on loans was $40.9 million in the third quarter of 2022 up $1.4 million from the same period in 2021. As mentioned above, the average yield decreased primarily as a result of lower loan origination rates while interest rates remained low before the recent increases by the Federal Reserve Board, as well as the timing of PPP loan origination fees.
Compared to the third quarter of 2021, the average balance of residential mortgage loans, home equity lines of credit, and installment loans increased while commercial loans decreased. The average balance of residential mortgage loans was $4.11 billion in the third quarter of 2022 compared to $3.92 billion in 2021, an increase of 4.7%. The average yield on residential mortgage loans decreased by 8 basis points to 3.44% in the third quarter of 2022 compared to 2021.
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 Company typically holds these loans in portfolio and does not sell them into the secondary markets. Assuming a continued 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 $3.3 million to an average balance of $207.5 million in the third quarter of 2022 compared to the same period in the prior year, primarily as a result of the forgiveness of PPP loans. The average yield on this portfolio was down 24 basis points to 4.79% compared to the prior year period primarily as a result of less origination fees recognized on the forgiven PPP loans. The Company remains 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 70 basis points to 4.39% during the third quarter of 2022 compared to the year earlier period. The average balances of home equity credit lines increased 13.1% to $261.6 million in the third quarter of 2022 as compared to the prior year.
Securities Available for Sale
The average balance of the securities available for sale portfolio for the third quarter of 2022 was $520.7 million compared to $453.1 million for the comparable period in 2021. The increasing balance reflects new investment purchases offset by paydowns, calls and maturities. The average yield was 2.12% for the third quarter of 2022 compared to 1.36% for the third quarter of 2021. The increase in average yield is a result of higher yields on bonds purchased in 2022 as a result of the current interest rate environment. This portfolio is primarily comprised of agency, mortgage backed securities and collateral mortgage obligation bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank and Freddie Mac), 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), net of tax.
The net unrealized loss in the available for sale securities portfolio was $49.4 million as of September 30, 2022 compared to a net unrealized loss of $4 thousand as of December 31, 2021. The increase in the net unrealized losses in the portfolio is the result of changes in market interest rate levels.
Held to Maturity Securities
The average balance of held to maturity securities was $8.3 million for the third quarter of 2022 compared to $11.2 million in the third quarter of 2021. The decrease in balances reflects routine paydowns and calls. No new securities were added to this portfolio during the period. The average yield was 4.08% for the third quarter of 2022 up from 3.72% for the year earlier period. The increase in the yield is primarily a result of an increase in average lives as well as the timing of mortgage-backed payments. TrustCo expects to hold the securities in this portfolio until they mature or are called.
As of September 30, 2022, this portfolio consisted solely of agency issued mortgage-backed securities and collateralized mortgage obligations. The balances for these securities are recorded at amortized cost.
Federal Funds Sold and Other Short-term Investments
The average balance of Federal Funds sold and other short‑term investments was $918.9 million for the third quarter of 2022 compared to $1.2 billion in the third quarter of 2022. The yield was 2.25% for the third quarter of 2022 and 0.16% for the comparable period in 2021. Interest income from this portfolio increased $4.8 million from $470 thousand in 2021 to $5.2 million in 2022. While the average balances decreased year over year, the increase in the federal funds target rate throughout 2022 resulted in an increase in interest income over the same period in the prior year.
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 deposit accounts (which includes interest bearing checking, money market accounts, savings and time deposits) increased $26.1 million to $4.50 billion for the third quarter of 2022 versus the third quarter in the prior year, and the average rate paid decreased from 0.14% for 2021 to 0.10% for 2022. Total interest expense on these deposits decreased from $1.5 million to $1.1 million in the third quarter of 2022 compared to the year earlier period. From the third quarter of 2021 to the third quarter of 2022, interest bearing demand account average balances were up 3.6%, certificates of deposit average balances were down 14.8%, non-interest demand average balances were up 10.1%, average savings balances increased 10.4% and money market balances were up 0.8%. 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 portfolios.
At September 30, 2022, the maturity of total time deposits is as follows:
| (dollars in thousands) | | | |
| | | | |
| Under 1 year | | $ | 786,544 | |
| 1 to 2 years | | | 71,291 | |
| 2 to 3 years | | | 5,618 | |
| 3 to 4 years | | | 936 | |
| 4 to 5 years | | | 89,833 | |
| Over 5 years | | | 130 | |
| | | $ | 954,352 | |
Average short-term borrowings for the third quarter 2022 were $138.1 million in 2022 compared to $240.2 million in 2021. The decrease in the average balance from the prior year period is primarily a result of a shift of funds into time deposits. The average rate decreased during this time period from 0.38% in 2021 to 0.35% in 2022. 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 deposits may be tested from time to time to ensure operational and market readiness.
Net Interest Income
Taxable equivalent net interest income increased by $7.9 million to $47.8 million in the third quarter of 2022 compared to the same period in 2021. The net interest spread was up 51 basis point to 3.13% in the third quarter of 2022 compared to the same period in 2021. As previously noted, the net interest margin was also up 51 basis points to 3.16% for the third quarter of 2022 compared to the same period in 2021.
Taxable equivalent net interest income increased by $10.8 million to $130.9 million in the first nine-months of 2022 compared to the same period in 2021. The net interest spread was up 19 basis points to 2.86% in the first nine-months of 2022 compared to the same period in 2021. Net interest margin was up 17 basis points to 2.88% for the first nine‑months of 2022 compared to the same period in 2021.
Nonperforming Assets
Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non‑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.
The following describes the nonperforming assets of TrustCo as of September 30, 2022:
Nonperforming loans and foreclosed real estate: Total NPLs and non-accrual loans were $18.7 million at September 30, 2022, compared to $18.8 million at December 31, 2021 and $20.2 million at September 30, 2021. There were no loans at September 30, 2022 and 2021 and December 31, 2021 that were past due 90 days or more and still accruing interest.
At September 30, 2022, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $18.7 million at September 30, 2022, $18.4 million were residential real estate loans, $179 thousand were commercial loans and mortgages and $94 thousand were installment loans, compared to $18.6 million, $112 thousand and $37 thousand, respectively, at December 31, 2021.
A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net recoveries were $164 thousand on residential real estate loans (including home equity lines of credit) for the third quarter of 2022 compared to net recoveries of $39 thousand for the third quarter of 2021. 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 Central Florida, 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 non-accrual status once they are 90 days past due, or earlier if management has determined that such classification is appropriate. Once in non-accrual 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. The collateral on non-accrual loans is evaluated periodically, and the loan value is written down if the collateral value is insufficient.
The Company originates loans throughout its branch franchise area. At September 30, 2022, 68.8% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 31.2% were in Florida. Those figures compare to 70.6% and 29.4%, respectively, at December 31, 2021.
Economic conditions vary widely by geographic location. As a percentage of the total nonperforming loans as of September 30, 2022, 11.6% were to Florida borrowers, compared to 88.4% to borrowers in New York and surrounding areas. For the three months ended September 30, 2022, New York and surrounding areas experienced net recoveries of approximately $130 thousand and Florida experienced net recoveries of $2 thousand for the third quarter of 2022.
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 September 30, 2022, 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 non-accrual commercial and commercial real estate loans, all loans restructured under a TDR, and residential non-accrual loans over 180 days as individually evaluated loans. There were $294 thousand of commercial mortgages and commercial loans classified as individually evaluated as of September 30, 2022 compared to $232 thousand classified as impaired at December 31, 2021. There were $26.2 million of individually evaluated residential loans at September 30, 2022 compared to $18.3 million classified as impaired at December 31, 2021.
As of September 30, 2022 and December 31, 2021, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.
At September 30, 2022 there was $682 thousand of foreclosed real estate compared to $362 thousand at December 31, 2021.
In response to Hurricane Ian, the Bank continues to assess the impact to the counties in Florida in which we do business. We are currently monitoring all customer contact in the affected counties and to date have not identified circumstances that would have a material adverse impact on the performance of our loan portfolio.
Allowance for credit losses on loans: The Company adopted CECL on January 1, 2022. Under this standard, allowances have been established for loans and commitments to lend. The allowance for credit losses on loans (“ACLL”) replaces the previous allowance for loan losses (“ALL”). Upon adoption, the allowance for credit losses on loans increased by $2.4 million to $46.6 million from $44.2 at December 31, 2021 under the ALLL. The allowance for credit losses on unfunded commitments increased from $18 thousand to $2.4 million and is recorded in accrued expenses and other liabilities. The Company recorded a net decrease to undivided profits of $3.5 million, net of $1.2 million in deferred tax balances as of January 1, 2022 for the cumulative effect of adopting CECL.
In the third quarter of 2022, the Company recorded a provision for credit losses of $300 thousand, which includes a provision for credit losses on loans of $100 thousand as a result of continued growth growth in the loan portfolio partially offset by a sustained low level of NPL’s and chargeoffs, and a provision for credit losses on unfunded commitments of $200 thousand as a result of a corresponding increase in unfunded loans.
During the most recent quarter, the Federal Reserve Bank increased the target federal funds rate on two occasions by 75 basis points each, and then another 75 basis points in November 2022, resulting in six interest rate hikes this year totaling 375 basis points. Rising inflation weighs on consumers’ purchasing power by slowing spending and driving monetary tightening. Inflation has reached a forty-year high, and labor and supply chain challenges have been heightened by the global impacts of the Russian invasion of Ukraine. Management has taken into consideration the possible effects of these changes qualitatively within the reserves.
The Company evaluates several external forecasts in choosing the forecast element for the economic components of the allowance for credit losses on loans. The Company selected the stagflation forecast for both January 1, 2022 and September 30, 2022 for economic modeling.
The following changes in forecasts from June to September impacted the reserves:
| | • | unemployment rates declining 2% for both New York and Florida, |
| | • | an increase in consumer price indices (“CPI”) of 0.2% for New York and 3% for Florida, |
| | • | an increase in Gross Metro Product (“GMP”) of 2% for New York, |
| | • | an increase in Gross Metro Product (“GMP”) of 4% for Florida. |
See Notes 1 and 5 of the financial statements for additional discussion related to the adoption of CECL, and the process for determining the provision for credit losses.
The allocation of the allowance for credit losses on loans as follows:
| | | As of | | | As of | |
| (dollars in thousands) | | September 30, 2022 | | | December 31, 2021 | |
| | | | | | Percent of | | | | | | Percent of | |
| | | | | | Loans to | | | | | | Loans to | |
| | | Amount | | | Total Loans | | | Amount | | | Total Loans | |
| Commercial | | $ | 2,169 | | | | 4.20 | % | | $ | 2,942 | | | | 4.08 | % |
| Real estate - construction | | | 393 | | | | 0.79 | % | | | 375 | | | | 0.84 | % |
| Real estate mortgage - 1 to 4 family | | | 38,649 | | | | 88.96 | % | | | 37,650 | | | | 89.67 | % |
| Home equity lines of credit | | | 4,162 | | | | 5.82 | % | | | 2,857 | | | | 5.20 | % |
| Installment Loans | | | 144 | | | | 0.23 | % | | | 443 | | | | 0.21 | % |
| | | $ | 45,517 | | | | 100.00 | % | | $ | 44,267 | | | | 100.00 | % |
At September 30, 2022, the allowance for loan losses was $45.5 million, compared to $47.4 million at September 30, 2021 and $44.3 million at December 31, 2021. The allowance represents 0.98% of the loan portfolio as of September 30, 2022, 1.00% at December 31, 2021, and 1.08% at September 30, 2021.
During the third quarter of 2022, there were no commercial loan chargeoffs, $13 thousand of residential loan chargeoffs, and $34 thousand of consumer loan chargeoffs, compared to $30 thousand of commercial loan chargeoffs, $73 thousand of gross residential mortgage chargeoffs, and $17 thousand of consumer loan chargeoffs in the third quarter of 2021. During the third quarter of 2022 there were no commercial loan recoveries, $177 thousand of residential mortgage recoveries, and $2 thousand for consumer loan recoveries, compared to no commercial loan recoveries, $112 thousand of residential mortgage recoveries, and $3 thousand of consumer loan recoveries in the third quarter of 2021.
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 deposits may be tested from time to time to ensure operational and market readiness. Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months and beyond.
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 September 30, 2022 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 September 30, 2022. 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, 200bp and 300bp.
| As of September 30, 2022 | | Estimated Percentage of Fair value of Capital to Fair value of Assets | |
+400 BP | | | 30.90 % |
|
+300 BP | | | 30.60 | |
+200 BP | | | 31.50 | |
+100 BP | | | 31.60 | |
Current rates | | | 30.60 | |
-100 BP | | | 28.50 | |
-200 BP | | | 25.30 | |
-300 BP | | | 21.60 | |
Noninterest Income
Total noninterest income for the third quarter of 2022 was $4.4 million compared to $4.3 million in the third quarter of 2021. Financial Services income was down $123 thousand to $1.4 million in the third quarter of 2022 as compared to the year-ago period, primarily as a result of lower market values of assets under management. The fair value of assets under management was $864.8 million at September 30, 2022, $1.10 billion as of December 31, 2021, and $1.05 billion at September 30, 2021. Fees for services to customers were up $174 thousand over the same period in the prior year, primarily as a result of more interchange income.
For the nine-months ended September 30, 2022 total noninterest income was $14.5 million, up $1.1 million compared to the prior year period. The increase is primarily the result of more interchange income and a gain on the sale of fixed assets, partially offset by less financial services income.
Noninterest Expenses
Total noninterest expenses were $26.1 million for the three-months ended September 30, 2022, compared to $24.7 million for the three-months ended September 30, 2021. Significant changes included a $225 thousand increase in salaries and employee benefits, a $224 thousand increase in net occupancy expense, a $313 thousand increase in outsourced services, a $198 increase in advertising expense, and a $572 thousand increase in other expenses, partially offset by a $96 thousand decrease in equipment expense, and a $108 thousand decrease in professional services. Full time equivalent headcount was 743 as of September 30, 2021, 759 as of December 31, 2021, and 753 as of September 30, 2022. Changes in headcount represent normal fluctuations.
Total noninterest expenses were $73.9 million for the nine-months ended September 30, 2022, compared to $75.5 million for the nine-months ended September 30, 2021. Significant changes included a decrease of $3.9 million in salaries and employee benefits primarily as a result of a $2 million favorable true-up to the incentive compensation accrual upon payout in the first quarter of 2022, as well as decreases in various other employee benefit plan expenses. This was partially offset by a $674 thousand increase in outsourced services, a $301 thousand increase in advertising expense and a $1.4 million increase in other expense.
Income Taxes
In the third quarter of 2022, TrustCo recognized income tax expense of $6.4 million compared to $5.5 million for the third quarter of 2021. The effective tax rates were 24.8% for both the third quarters of 2022 and 2021. For the first nine-months, income taxes were $17.6 million and $15.2 million in 2022 and 2021, respectively. The effective tax rate was 24.5% and 25.2% for 2022 and 2021, 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” banking capital reform measures and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as a general trend towards reducing risk in the banking system by providing a greater capital margin.
Total shareholders’ equity at September 30, 2022 was $589.0 million compared to $586.7 million at September 30, 2021. TrustCo declared a dividend of $0.35 per share in the third quarter of 2022. This results in a dividend payout ratio of 34.57% based on third quarter 2022 earnings of $19.4 million.
The Bank and the Company reported the following capital ratios as of September 30, 2022 and December 31, 2021:
(Bank Only) | | As of September 30, 2022 | | | Well | | | Minimum for Capital Adequacy plus Capital Conservation | |
(dollars in thousands) | | Amount | | | Ratio | | | Capitalized(1) | | | Buffer (1)(2) | |
| | | | | | | | | | | | | |
| Tier 1 leverage ratio | | $ | 597,092 | | | | 9.648 | % | | | 5.000 | % | | | 4.000 | % |
| Common equity tier 1 capital | | | 597,092 | | | | 18.333 | | | | 6.500 | | | | 7.000 | |
| Tier 1 risk-based capital | | | 597,092 | | | | 18.333 | | | | 8.000 | | | | 8.500 | |
| Total risk-based capital | | | 637,906 | | | | 19.586 | | | | 10.000 | | | | 10.500 | |
| | | As of December 31, 2021 | | | Well | | | Minimum for Capital Adequacy plus Capital Conservation | |
(dollars in thousands) | | Amount | | | Ratio | | | Capitalized(1) | | | Buffer (1)(2) | |
| | | | | | | | | | | | | |
Tier 1 leverage ratio | | $ | 570,594 | | | | 9.324 | % | | | 5.000 | % | | | 4.000 | % |
Common equity tier 1 capital | | | 570,594 | | | | 18.954 | | | | 6.500 | | | | 7.000 | |
Tier 1 risk-based capital | | | 570,594 | | | | 18.954 | | | | 8.000 | | | | 8.500 | |
Total risk-based capital | | | 608,308 | | | | 20.206 | | | | 10.000 | | | | 10.500 | |
| | | As of September 30, 2022 | | | Minimum for Capital Adequacy plus Capital Conservation | |
(dollars in thousands) | | Amount | | | Ratio | | | Buffer (1)(2) | |
| | | | | | | | | | |
Tier 1 leverage ratio | | $ | 613,661 | | | | 9.913 | % | | | 4.000 | % |
Common equity tier 1 capital | | | 613,661 | | | | 18.837 | | | | 7.000 | |
Tier 1 risk-based capital | | | 613,661 | | | | 18.837 | | | | 8.500 | |
Total risk-based capital | | | 654,486 | | | | 20.090 | | | | 10.500 | |
| | | As of December 31, 2021 | | | Minimum for Capital Adequacy plus Capital Conservation | |
(dollars in thousands) | | Amount | | | Ratio | | | Buffer (1)(2) | |
| | | | | | | | | | |
Tier 1 leverage ratio | | $ | 588,427 | | | | 9.614 | % | | | 4.000 | % |
Common equity Tier 1 capital | | | 588,427 | | | | 19.541 | | | | 7.000 | |
Tier 1 risk-based capital | | | 588,427 | | | | 19.541 | | | | 8.500 | |
Total risk-based capital | | | 626,150 | | | | 20.794 | | | | 10.500 | |
| | | | | | | | | | | | | |
| (1) | Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized |
| (2) | The September 30, 2022 and December 31, 2021 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent |
In addition, at September 30, 2022, the consolidated equity to total assets ratio was 9.69%, compared to 9.70% at December 31, 2021 and 9.56% at September 30, 2021.
As of September 30, 2022, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the fully phased-in capital conservation buffer taken into account.
Under the Office 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 7%, 8.5%, 10.5% 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 September 30, 2022 and 2021, Trustco Bank met the definition of “well-capitalized.”
As noted, the Company’s dividend payout ratio was 34.57% of net income for the third quarter of 2022 and 39.13% of net income for the third quarter of 2021. The per-share dividend paid in the third quarter of 2022 and 2021 was $0.35 and $0.340625, respectively. 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. 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 statute, regulation or agreement.
TrustCo maintains a dividend reinvestment plan (“DRP”) with approximately 7,047 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.
Reverse Stock Split
Effective as of May 28, 2021, the Company completed a 1-for-5 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $1.00 per share. Proportional adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and number of shares issuable upon exercise of the options outstanding under the Company’s equity incentive plans and the number of shares subject to restricted stock units under the Company’s equity incentive plans. No fractional shares of common stock were issued in connection with the Reverse Stock Split, and shareholders received cash in lieu of any fractional shares. All references herein to common stock and per share data for all periods presented in the consolidated financial statements and notes thereto have been retrospectively adjusted to reflect the Reverse Stock Split.
Share Repurchase Program
On March 9, 2022 the Company’s Board of Directors authorized, and the Company announced, another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock. During the three months ended September 30, 2022, the Company repurchased a total of 75,100 thousand shares at an average price per share of $33.37, for a total of $2.5 million, under its Board authorized share repurchase program.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, income taxes and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
During the nine months ended September30, 2022, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the 2021 Form 10-K other than what is set forth immediately below.
Management considers the accounting policy relating to the allowance for credit losses to be a critical accounting policy given the measurement uncertainty and subjective judgement necessary in evaluating the levels of the allowance required to cover the life time losses in the loan portfolio and the material effect that such judgments can have on the results of operations.
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of 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' equity is the unrealized gain (loss), net of tax, in the available for sale portfolio of $($25.4) million in 2022 and $3.9 million in 2021. 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 September 30, 2022 | | | Three months ended September 30, 2021 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | $ | 104,633 | | | $ | 479 | | | | 1.83 | % | | $ | 68,505 | | | $ | 91 | | | | 0.53 | % | | $ | 388 | | | | 68 | | | | 320 | |
| Mortgage backed securities and collateralized mortgage obligations-residential | | | 302,886 | | | | 1,617 | | | | 2.13 | % | | | 300,765 | | | | 1,038 | | | | 1.38 | % | | | 579 | | | | 7 | | | | 572 | |
| State and political subdivisions | | | 41 | | | | 1 | | | | 8.12 | % | | | 48 | | | | 2 | | | | 6.66 | % | | | (1 | ) | | | (1 | ) | | | - | |
| Corporate bonds | | | 86,965 | | | | 526 | | | | 2.42 | % | | | 48,543 | | | | 220 | | | | 1.81 | % | | | 306 | | | | 215 | | | | 91 | |
| Small Business Administration-guaranteed participation securities | | | 25,533 | | | | 133 | | | | 2.08 | % | | | 34,578 | | | | 181 | | | | 2.09 | % | | | (48 | ) | | | (47 | ) | | | (1 | ) |
| Other | | | 686 | | | | 3 | | | | 1.75 | % | | | 686 | | | | 5 | | | | 2.92 | % | | | (2 | ) | | | - | | | | (2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total securities available for sale | | | 520,744 | | | | 2,759 | | | | 2.12 | % | | | 453,125 | | | | 1,537 | | | | 1.36 | % | | | 1,222 | | | | 242 | | | | 980 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal funds sold and other short-term Investments | | | 918,909 | | | | 5,221 | | | | 2.25 | % | | | 1,166,679 | | | | 470 | | | | 0.16 | % | | | 4,751 | | | | (704 | ) | | | 5,455 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Held to maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage backed securities and collateralized mortgage obligations-residential | | | 8,306 | | | | 85 | | | | 4.08 | % | | | 11,168 | | | | 104 | | | | 3.72 | % | | | (19 | ) | | | (72 | ) | | | 53 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total held to maturity securities | | | 8,306 | | | | 85 | | | | 4.08 | % | | | 11,168 | | | | 104 | | | | 3.72 | % | | | (19 | ) | | | (72 | ) | | | 53 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal Reserve Bank and Federal Home Loan Bank stock | | | 5,797 | | | | 80 | | | | 5.52 | % | | | 5,604 | | | | 64 | | | | 4.57 | % | | | 16 | | | | 2 | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial loans | | | 207,477 | | | | 2,484 | | | | 4.79 | % | | | 210,825 | | | | 2,649 | | | | 5.03 | % | | | (165 | ) | | | (42 | ) | | | (123 | ) |
| Residential mortgage loans | | | 4,105,859 | | | | 35,342 | | | | 3.44 | % | | | 3,920,903 | | | | 34,532 | | | | 3.52 | % | | | 810 | | | | 4,773 | | | | (3,963 | ) |
| Home equity lines of credit | | | 261,575 | | | | 2,896 | | | | 4.39 | % | | | 231,269 | | | | 2,152 | | | | 3.69 | % | | | 744 | | | | 304 | | | | 440 | |
| Installment loans | | | 10,213 | | | | 174 | | | | 6.75 | % | | | 8,669 | | | | 155 | | | | 7.10 | % | | | 19 | | | | 63 | | | | (44 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans, net of unearned income | | | 4,585,124 | | | | 40,896 | | | | 3.57 | % | | | 4,371,666 | | | | 39,488 | | | | 3.61 | % | | | 1,408 | | | | 5,098 | | | | (3,690 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest earning assets | | | 6,038,880 | | | | 49,041 | | | | 3.24 | % | | | 6,008,242 | | | | 41,663 | | | | 2.77 | % | | | 7,378 | | | | 4,566 | | | | 2,812 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for credit losses on loans | | | (45,519 | ) | | | | | | | | | | | (50,160 | ) | | | | | | | | | | | | | | | | | | | | |
| Cash & non-interest earning assets | | | 188,672 | | | | | | | | | | | | 195,902 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 6,182,033 | | | | | | | | | | | $
| 6,153,984 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities and shareholders' equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | |
| Interest bearing checking accounts | | | 1,195,370 | | | | 43 | | | | 0.01 | % | | $ | 1,153,812 | | | $ | 38 | | | | 0.01 | % | | | 5 | | | | 1 | | | | 4 | |
| Money market accounts | | | 744,868 | | | | 237 | | | | 0.13 | % | | | 738,662 | | | | 202 | | | | 0.11 | % | | | 35 | | | | 2 | | | | 33 | |
| Savings | | | 1,579,513 | | | | 200 | | | | 0.05 | % | | | 1,430,558 | | | | 154 | | | | 0.04 | % | | | 46 | | | | 17 | | | | 29 | |
| Time deposits | | | 981,704 | | | | 646 | | | | 0.26 | % | | | 1,152,298 | | | | 1,149 | | | | 0.40 | % | | | (503 | ) | | | (152 | ) | | | (351 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest bearing deposits | | | 4,501,455 | | | | 1,126 | | | | 0.10 | % | | | 4,475,330 | | | | 1,543 | | | | 0.14 | % | | | (417 | ) | | | (132 | ) | | | (285 | ) |
| Short-term borrowings | | | 138,105 | | | | 122 | | | | 0.35 | % | | | 240,183 | | | | 232 | | | | 0.38 | % | | | (110 | ) | | | (90 | ) | | | (20 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest bearing liabilities | | | 4,639,560 | | | | 1,248 | | | | 0.11 | % | | | 4,715,513 | | | | 1,775 | | | | 0.15 | % | | | (527 | ) | | | (222 | ) | | | (305 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | | 859,122 | | | | | | | | | | | | 780,163 | | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | 82,290 | | | | | | | | | | | | 75,116 | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' equity | | | 601,061 | | | | | | | | | | | | 583,192 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders' equity | | $ | 6,182,033 | | | | | | | | | | | $ | 6,153,984 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income, tax equivalent | | | | | | | 47,793 | | | | | | | | | | | | 39,888 | | | | | | | $ | 7,905 | | | | 4,788 | | | | 3,117 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest spread | | | | | | | | | | | 3.13 | % | | | | | | | | | | | 2.62 | % | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest margin (net interest income to total interest earning assets) | | | | | | | | | | | 3.16 | % | | | | | | | | | | | 2.65 | % | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tax equivalent adjustment | | | | | | | - | | | | | | | | | | | | (1 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | | $
| 47,793 | | | | | | | | | | | $
| 39,887 | | | | | | | | | | | | | | | | | |
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of 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' equity is the unrealized gain (loss), net of tax, in the available for sale portfolio of $(17.9) million in 2022 and $4.1 million in 2021. 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) | | Nine months ended September 30, 2022 | | | Nine months ended September 30, 2021 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | Average Balance | | | Interest | | | Average Rate | | | Average Balance | | | Interest | | | Average Rate | | | Change in Interest Income/ Expense | | | Variance Balance Change | | | Variance Rate Change | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U. S. government sponsored enterprises | | $ | 79,423 | | | $
| 712 | | | | 1.19 | % | | $ | 65,103 | | | $
| 238 | | | | 0.49 | | | $ | 474 | | | | 63 | | | | 411 | |
| Mortgage backed securities and collateralized mortgage obligations-residential | | | 282,423 | | | | 4,071 | | | | 1.92 | % | | | 318,472 | | | | 3,442 | | | | 1.44 | | | | 629 | | | | (615 | ) | | | 1,244 | |
| State and political subdivisions | | | 41 | | | | 2 | | | | 6.73 | % | | | 49 | | | | 3 | | | | 8.16 | | | | (1 | ) | | | - | | | | (1 | ) |
| Corporate bonds | | | 75,957 | | | | 1,281 | | | | 2.25 | % | | | 56,245 | | | | 859 | | | | 2.04 | | | | 422 | | | | 325 | | | | 97 | |
| Small Business Administration-guaranteed participation securities | | | 27,623 | | | | 427 | | | | 2.06 | % | | | 36,981 | | | | 580 | | | | 2.09 | | | | (153 | ) | | | (145 | ) | | | (8 | ) |
| Other | | | 686 | | | | 7 | | | | 2.04 | % | | | 686 | | | | 16 | | | | 3.11 | | | | (9 | ) | | | - | | | | (9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total securities available for sale | | | 466,153 | | | | 6,500 | | | | 2.79 | % | | | 477,536 | | | | 5,138 | | | | 1.43 | | | | 1,362 | | | | (372 | ) | | | 1,734 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal funds sold and other short-term Investments | | | 1,068,217 | | | | 8,046 | | | | 1.01 | % | | | 1,108,018 | | | | 1,026 | | | | 0.12 | | | | 7,020 | | | | (63 | ) | | | 7,083 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Held to maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage backed securities and collateralized mortgage obligations-residential | | | 8,897 | | | | 262 | | | | 3.93 | % | | | 12,199 | | | | 338 | | | | 3.70 | | | | (76 | ) | | | (108 | ) | | | 32 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total held to maturity securities | | | 8,897 | | | | 262 | | | | 3.93 | % | | | 12,199 | | | | 338 | | | | 3.70 | | | | (76 | ) | | | (108 | ) | | | 32 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal Reserve Bank and Federal Home Loan Bank stock | | | 5,734 | | | | 207 | | | | 7.22 | % | | | 5,570 | | | | 198 | | | | 4.74 | | | | 9 | | | | - | | | | 9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial loans | | | 200,525 | | | | 7,412 | | | | 4.93 | % | | | 212,832 | | | | 8,203 | | | | 5.14 | | | | (791 | ) | | | (465 | ) | | | (326 | ) |
| Residential mortgage loans | | | 4,054,657 | | | | 104,310 | | | | 3.43 | % | | | 3,852,960 | | | | 104,219 | | | | 3.61 | | | | 91 | | | | 7,109 | | | | (7,018 | ) |
| Home equity lines of credit | | | 246,026 | | | | 7,289 | | | | 3.96 | % | | | 234,682 | | | | 6,622 | | | | 3.77 | | | | 667 | | | | 329 | | | | 338 | |
| Installment loans | | | 9,507 | | | | 492 | | | | 6.91 | % | | | 8,608 | | | | 469 | | | | 7.28 | | | | 23 | | | | 58 | | | | (35 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans, net of unearned income | | | 4,510,715 | | | | 119,503 | | | | 3.53 | % | | | 4,309,082 | | | | 119,513 | | | | 3.70 | | | | (10 | ) | | | 7,031 | | | | (7,041 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest earning assets | | | 6,059,716 | | | | 134,518 | | | | 2.96 | % | | | 5,912,405 | | | | 126,213 | | | | 2.85 | | | | 8,305 | | | | 6,488 | | | | 1,817 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for credit losses on loans | | | (46,225 | ) | | | | | | | | | | | (50,101 | ) | | | | | | | | | | | | | | | | | | | | |
| Cash & non-interest earning assets | | | 196,333 | | | | | | | | | | | | 196,876 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 6,209,824 | | | | | | | | | | | $ | 6,059,180 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities and shareholders' equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing checking accounts | | $ | 1,199,154 | | | | 129 | | | | 0.01 | % | | $ | 1,129,480 | | | | 136 | | | | 0.02 | | | | (7 | ) | | | 18 | | | | (25 | ) |
| Money market accounts | | | 771,301 | | | | 661 | | | | 0.11 | % | | | 731,171 | | | | 721 | | | | 0.13 | | | | (60 | ) | | | 65 | | | | (125 | ) |
| Savings | | | 1,557,503 | | | | 519 | | | | 0.04 | % | | | 1,376,494 | | | | 475 | | | | 0.05 | | | | 44 | | | | 106 | | | | (62 | ) |
| Time deposits | | | 971,539 | | | | 1,728 | | | | 0.24 | % | | | 1,203,708 | | | | 4,076 | | | | 0.45 | | | | (2,348 | ) | | | (683 | ) | | | (1,665 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest bearing deposits | | | 4,499,497 | | | | 3,037 | | | | 0.09 | % | | | 4,440,853 | | | | 5,408 | | | | 0.16 | | | | (2,371 | ) | | | (494 | ) | | | (1,877 | ) |
| Short-term borrowings | | | 194,228 | | | | 532 | | | | 0.37 | % | | | 232,532 | | | | 688 | | | | 0.40 | | | | (156 | ) | | | (112 | ) | | | (44 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest bearing liabilities | | | 4,693,725 | | | | 3,569 | | | | 0.10 | % | | | 4,673,385 | | | | 6,096 | | | | 0.17 | | | | (2,527 | ) | | | (606 | ) | | | (1,921 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | | 836,953 | | | | | | | | | | | | 735,495 | | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | 81,780 | | | | | | | | | | | | 73,689 | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' equity | | | 597,366 | | | | | | | | | | | | 576,611 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders' equity | | $ | 6,209,824 | | | | | | | | | | | $ | 6,059,180 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income , tax equivalent | | | | | | | 130,949 | | | | | | | | | | | | 120,117 | | | | | | | $ | 10,832 | | | | 7,094 | | | | 3,738 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest spread | | | | | | | | | | | 2.86 | % | | | | | | | | | | | 2.67 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest margin (net interest income to total interest earning assets) | | | | | | | | | | | 2.88 | % | | | | | | | | | | | 2.71 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tax equivalent adjustment | | | | | | | - | | | | | | | | | | | | (1 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | | $
| 130,949 | | | | | | | | | | | $
| 120,116 | | | | | | | | | | | | | | | | | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
The information presented in the "Liquidity and Interest Rate Sensitivity" section of Part I, Item 2 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
As detailed in the Annual Report to Shareholders as of December 31, 2021, the Company is subject to interest rate risk as its principal market risk. As noted in the Management’s Discussion and Analysis for the three-month and nine-month month periods ended September 30, 2022 and 2021, 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 third quarter of 2022, the Company had an average balance of Federal Funds sold and other short-term investments of $918.9 million compared to $1.2 billion in the third quarter of 2021. 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. TrustCo does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as “derivatives.” 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.
| 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 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 Company’s 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 Company’s internal control over financial reporting.
None.
There were no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and the risk factors contained in “Risk Factors” within Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which are incorporated herein by reference.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Share Repurchase Program
The following table provides certain information with respect to the Company’s purchases of its common shares during the three months ended September 30, 2022:
| Period | | Total Numbers of shares purchased | | | Average 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) | |
| July 1, 2022 through July 31, 2022 | | | - | | | $ | - | | | | - | | | | 106,886 | |
| August 1, 2022 through August 31, 2022 | | | - | | | | - | | | | - | | | | 106,886 | |
| September 1, 2022 through September 30, 2022 | | | 75,100 | | | | 33.37 | | | | 75,100 | | | | 32,786 | |
| Total | | | 75,100 | | | $ | 33.37 | | | | 75,100 | | | | 32,786 | |
| (1) | On March 9, 2022 the Company’s Board of Directors authorized another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock. During the three months ended September 30, 2022, the Company repurchased a total of 75,100 shares at an average price per share of $33.37, for a total of $2.5 million under its Board authorized share repurchase program. |
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
None.
None.
Reg S-K (Item 601)
| Exhibit No. | Description |
| | |
| Amended and Restated Certificate of Incorporation of TrustCo Bank Corp NY (incorporated by reference to Exhibit 3.1 to TrustCo Bank Corp NY's Quarterly Report on Form 10-Q, filed August 5, 2021). |
| | |
| Amended and Restated Bylaws of TrustCo Bank Corp NY, dated May 23, 2019 (incorporated by reference to Exhibit 3.2 to TrustCo Bank Corp NY's Quarterly Report on Form 10-Q, filed August 8, 2019). |
| | |
| Crowe LLP Letter Regarding Unaudited Interim Financial Information |
| | |
| Rule 13a-14(a)/15d-14(a) Certification of Robert J. McCormick, principal executive officer. |
| | |
| Rule 13a-14(a)/15d-14(a) 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 | Sections of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in XBRL (eXtensible Business Reporting Language), submitted in the following files: |
| | |
| | 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 |
| | | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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: November 7, 2022 | |
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