UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ---------------------------------------------------------------------------
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number 0-10592
September 30, 1996
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Identification No.)
320 STATE STREET, SCHENECTADY, NEW YORK 12305
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of
the Act:
Name of exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of
the Act:
(Title of class)
Common
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes.(x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class of Common Stock as of November 6, 1996
--------------------------- ----------------------
$1 Par Value 20,380,409
- --------------------------------------------------------------------------------
- 1 -
TrustCo Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1.Interim Financial Statements (Unaudited): 1
Consolidated Statements of Income for the
Three Months and Nine Months Ended
September 30, 1996 and 1995
Consolidated Statements of Financial 2
Condition as of September 30, 1996 and
December 31, 1995
Consolidated Statements of Cash Flows 3-4
for the Nine Months Ended September 30,
1996 and 1995
Notes to Consolidated Interim Financial 5
Statements
Independent Auditors' Report 6
Item 2.Management's Discussion and Analysis 7-16
Part II.OTHER INFORMATION
Item 1. Legal Proceedings -- NONE
Item 2. Changes in Securities -- NONE
Item 3. Defaults Upon Senior securities -- NONE
Item 4. Submission of Matters to Vote of Security
Holders -- NONE
Item 5. Other Information -- NONE
ii
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Reg S-K Exhibit No. Description
------------------------------ -----------------------
NONE
(b) Reports on Form 8-K
Filing of Form 8-K on August 22, 1996, regarding the declaration of a
quarterly cash dividend of $0.275 per share and the issuance of a 15%
stock split, incorporated herein by reference.
Filing of Form 8-K on October 16, 1996, of two press releases detailing
third quarter 1996 financial results, incorporated herein by reference.
iii
TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(Dollars in Thousands)
3 Months Ended 9 Months Ended
Sept 30 Sept 30
1996 1995 1996 1995
------- ------- ------- -------
Interest income:
Interest and fees on loans..........................$ 26,642 27,035 80,315 79,598
Interest on U. S. Treasuries and agencies............ 6,840 8,132 23,990 20,067
Interest on states and political
subdivisions........................................ 1,117 795 3,000 2,049
Interest on mortgage-backed securities............... 595 2,112 3,029 6,636
Other................................................ 498 524 1,675 1,694
Interest on federal funds sold....................... 5,898 2,908 12,911 9,525
------- ------- ------- -------
Total interest income............................. 41,590 41,506 124,920 119,569
------- ------- ------- -------
Interest expense:
Interest on deposits:
NOW accounts........................................ 908 1,107 2,701 3,260
Savings............................................. 5,845 6,386 17,278 17,693
Money market deposit accounts....................... 523 566 1,535 1,763
Certificates of deposit of $100,000 or more......... 1,216 1,347 3,711 3,514
Other time.......................................... 10,887 11,359 32,991 31,172
Interest on short-term borrowings.................... 1,406 642 3,236 1,019
Interest on long-term debt........................... --- --- --- 69
------- ------- ------- -------
Total interest expense............................. 20,785 21,407 61,452 58,490
------- ------- ------- -------
Net interest income................................ 20,805 20,099 63,468 61,079
Provision for loan losses............................. 943 3,120 4,907 9,738
------- ------- ------- -------
Net interest income after provision
for loan losses................................... 19,862 16,979 58,561 51,341
------- ------- ------- -------
Noninterest income:
Trust department income.............................. 1,391 1,195 4,179 3,638
Fees for other services to customers................. 1,707 1,808 5,162 5,164
Net gain/(loss) on securities available for sale..... (1,291) 141 (4,342) 769
Other................................................ 602 503 1,562 1,511
------- ------- ------- -------
Total noninterest income............................ 2,409 3,647 6,561 11,082
------- ------- ------- -------
Noninterest expenses:
Salaries and employee benefits....................... 5,333 4,949 15,951 14,742
Net occupancy expense................................ 970 1,913 3,200 3,590
Equipment expense.................................... 780 851 2,439 2,433
FDIC insurance expense............................... --- (116) 2 1,918
Professional services................................ 1,053 894 2,716 2,609
Other real estate expenses........................... 69 547 434 2,853
Other................................................ 2,043 1,657 6,627 6,163
------- ------- ------- -------
Total noninterest expenses.......................... 10,248 10,695 31,369 34,308
------- ------- ------- -------
Income before taxes................................ 12,023 9,931 33,753 28,115
Applicable income taxes............................... 4,556 3,335 12,688 9,508
------- ------- ------- -------
Net income.......................................$ 7,467 6,596 21,065 18,607
======== ======= ======== =======
* Earnings per Common Share:
Net income.......................................$ 0.36 0.32 1.00 0.90
======= ======= ======= ========
Average equivalent shares outstanding (000s omitted). 21,025 20,836 20,968 20,681
======= ======= ======= ========
*Per share data adjusted for 15% stock split declared August, 1996.
See accompanying notes to consolidated interim financiaL statements.
-1-
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
09/30/96 12/31/95
(Unaudited)
Assets: --------- ---------
Cash and due from banks................................$ 42,385 50,889
Federal funds sold..................................... 388,000 239,000
--------- ---------
Total cash and cash equivalents...................... 430,385 289,889
Securities available for sale:
U. S. Treasuries and agencies......................... 383,472 447,343
States and political subdivisions..................... 87,577 70,371
Mortgage-backed securities............................ 44,800 80,284
Other................................................. 31,938 42,208
--------- ---------
Total securities available for sale.................. 547,787 640,206
--------- ---------
Loans:
Commercial............................................ 219,136 233,590
Residential mortgage loans............................ 788,888 763,099
Home equity line of credit............................ 185,571 194,744
Installment loans..................................... 32,778 36,493
--------- ---------
Total loans.......................................... 1,226,373 1,227,926
Less: --------- ---------
Allowance for loan losses............................. 50,909 48,320
Unearned income....................................... 1,542 1,784
--------- ---------
Net loans............................................. 1,173,922 1,177,822
Bank premises and equipment............................ 23,621 25,008
Real estate owned...................................... 6,584 3,732
Other assets........................................... 64,635 39,528
--------- ---------
Total assets........................................$2,246,934 2,176,185
========= =========
Liabilities:
Deposits:
Demand................................................$ 128,338 111,743
Now accounts.......................................... 228,919 231,107
Savings accounts...................................... 669,863 649,033
Money market deposit accounts......................... 61,724 69,434
Certificates of deposit (in denominations of
$100,000 or more).................................... 84,388 84,210
Other time............................................ 758,497 785,122
--------- ---------
Total deposits....................................... 1,931,729 1,930,649
Short-term borrowings.................................. 124,961 56,654
Accrued expenses and other liabilities................. 32,592 28,783
--------- ---------
Total liabilities.................................... 2,089,282 2,016,086
--------- ---------
Shareholders' equity
Capital stock par value $1; 50,000,000 and 25,000,000
shares authorized September 30, 1996 and December 31, 1995,
respectively, and 18,224,596 and 18,134,708 shares issued
September 30, 1996 and December 31, 1995, respectively 18,225 18,135
Surplus................................................ 116,968 116,128
Undivided profits...................................... 21,187 14,720
Net unrealized gain on securities available for sale... 2,675 12,363
Treasury stock at cost - 503,146 and 496,646 shares at
September 30, 1996 and December 31, 1995, respectively (1,403) (1,247)
--------- ---------
Total shareholders' equity........................... 157,652 160,099
--------- ---------
Total liabilities and shareholders' equity...........$2,246,934 2,176,185
========= =========
See accompanying notes to consolidated interim financial
statements.
-2-
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED September 30, 1996 1995
-------- --------
Cash flows from operating activities:
Net income.............................................. 21,065 18,607
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 2,269 2,831
Provision for loan losses............................. 4,907 9,738
Loss on sale of securities available for sale......... 7,546 404
Gain on sale of securities available for sale......... (3,204) (1,173)
Increase in taxes receivable.......................... (6,393) (4,847)
Increase in interest receivable....................... (271) (4,241)
Increase/(decrease) in interest payable............... (51) 806
Decrease in other assets.............................. 787 6,377
Increase/(decrease) in accrued expenses............... 3,836 (3,599)
-------- --------
Total adjustments 9,426 6,296
-------- --------
Net cash provided by operating activities............... 30,491 24,903
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale.. 365,606 181,092
Purchase of securities available for sale............. (396,924) (428,926)
Proceeds from maturities and calls
of securities available for sale..................... 91,022 275
Proceeds from maturities of investment securities .... --- 58,710
Purchase of investment securities..................... --- (3,338)
Net increase in loans................................. (8,210) (56,225)
Proceeds from sales of real estate owned.............. 3,806 3,139
Capital expenditures.................................. (882) (1,256)
-------- --------
Net cash provided by/(used in) investing activities. 54,418 (246,529)
-------- --------
Cash flows from financing activities:
Net increase in deposits.............................. 1,080 108,091
Net increase in short-term borrowing.................. 68,307 47,894
Repayment of long-term debt........................... --- (3,550)
Proceeds from issuance of common stock................ 930 573
Purchase of treasury stock............................ (156) (253)
Dividends paid........................................ (14,574) (12,084)
-------- --------
Net cash provided by financing activities........... 55,587 140,671
-------- --------
Net increase/(decrease) in cash and cash equivalents.... 140,496 (80,955)
Cash and cash equivalents at beginning of period........ 289,889 315,479
-------- --------
Cash and cash equivalents at end of period..............$ 430,385 234,524
======== ========
See accompanying notes to consolidated interim financial statements. (Continued)
-3-
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows Continued (Unaudited)
(Dollars in Thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NINE MONTHS ENDED September 30, 1996 1995
-------- --------
Interest paid.........................................$ 61,503 57,684
Income taxes paid..................................... 18,914 14,355
Transfer of loans to real estate owned................ 7,203 5,846
Increase in dividends payable......................... 24 821
Change in unrealized (appreciation)/depreciation
on securities available for sale-gross............... 16,499 (7,358)
Change in deferred tax effect on unrealized gain(loss)
on securities available for sale..................... (6,811) 3,070
Transfer of Rabbi Trusts from securities available
for sale to other assets............................. 11,874 ---
Transfer of building from other real estate to premises --- 2,500
See accompanying notes to consolidated interim financial statements.
-4-
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements
(Unaudited)
1. Financial Statement Presentation
In the opinion of the management of TrustCo Bank Corp NY (the Company), the
accompanying unaudited Consolidated Interim Financial Statements contain all
adjustments necessary to present fairly the financial position as of September
30, 1996, the results of operations for the three months and nine months ended
September 30, 1996 and 1995, and the cash flows for the nine months ended
September 30, 1996 and 1995. The accompanying Consolidated Interim Financial
Statements should be read in conjunction with the TrustCo Bank Corp NY
year-end Consolidated Financial Statements, including notes thereto, which are
included in TrustCo Bank Corp NY's 1995 Annual Report to Shareholders on Form
10-K.
- 5 -
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have reviewed the consolidated statement of financial condition of TrustCo
Bank Corp NY and subsidiaries (the Company) as of September 30, 1996, and the
related consolidated statements of income for the three month and nine month
periods ended September 30, 1996 and 1995, and the consolidated statements of
cash flows for the nine month periods ended September 30, 1996 and 1995. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of TrustCo Bank
Corp NY and subsidiaries as of December 31, 1995 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated January 26,
1996, 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, 1995, is
fairly presented, in all material respects, in relation to the consolidated
statement of financial condition from which it has been derived.
/s/KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Albany, New York
October 11, 1996
- 6 -
TrustCo Bank Corp NY
Management's Discussion and Analysis
September 30, 1996
The review that follows focuses on the factors affecting the financial
condition and results of operations of TrustCo Bank Corp NY ("TrustCo " or "
Company") during the three month and nine month periods ended September 30,
1996, with comparisons to 1995 as applicable. Net interest income and net
interest margin are presented on a fully taxable equivalent basis in this
discussion. The consolidated interim financial statements and related notes,
as well as the 1995 Annual Report to Shareholders, should be read in
conjunction with this review. Amounts in prior period consolidated interim
financial statements are reclassified whenever necessary to conform to the
current period's presentation. Per share results have all been adjusted for
the 15% stock split effective October 1996.
Except for historical information contained herein, the matters contained in
this review are "forward-looking statements" that involve risk and
uncertainties, including statements concerning future events or performance
and assumptions and other statements which are other than statements of
historical facts. The Company wishes to caution readers that the following
important factors, among others, could in the future affect the Company's
actual results and could cause the Company's actual results for subsequent
periods to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company herein:
o the effect of changes in laws and regulations, including
federal and state banking laws and regulations, with which
the Company and its banking subsidiary must comply, the cost
of such compliance and the potentially material adverse
effects if the Company or its banking subsidiary were not in
substantial compliance either currently or in the future as
applicable;
o the effect of changes in accounting policies and practices,
as may be adopted by the regulatory agencies as well as by
the Financial Accounting Standards Board, or changes in the
Company's organization, compensation and benefit plans;
o the effect on the company's competitive position within its
market area of increasing consolidation within the banking
industry and increasing competition from larger "super
regional" and other out-of-state banking- organizations as
well as nonbank providers of various financial services;
o the effect of unforeseen changes in interest rates; and
o the effects of changes in the business cycle and downturns in the
local economy.
- 7 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1996
Overview
TrustCo recorded net income of $7.5 million, or $0.36 per share for the three
month period ended September 30, 1996, as compared to net income of $6.6
million and per share earnings of $0.32 for the same time period in 1995.
For the nine months ended September 30, 1996, TrustCo recorded net income of
$21.1 million or $1.00 per share compared to $18.6 million and $0.90 per share
in the comparable period in 1995.
The primary factors accounting for the year to date increase in net income
are:
_
|_| an 8.5% increase in average earning assets,
|_| reduction in the provision for loan losses by $4.8 million,
|_| increase in noninterest income (excluding the effects of securities
_ transactions) by approximately $590,000, and
|_| the reduction in noninterest expense of $2.9 million.
These positive factors affecting net income were offset by the following:
_
|_| reduction in the net interest margin from 4.24% to 4.08%, |_| loss on
securities sales of $4.3 million, and |_| an increase in income tax expense
of $3.2 million.
Asset/Liability Management
The Company strives to generate superior earnings capabilities through a mix
of core deposits funding a prudent mix of earning assets. This is, in its most
fundamental form, the essence of asset/liability management. Additionally,
TrustCo attempts to maintain adequate liquidity and reduce, to an acceptable
level, the sensitivity of net interest income to changes in interest rates
while enhancing profitability both on a short-term and long-term basis.
Earning Assets
Average earning assets increased $113.1 million to $2.16 billion during the
third quarter of 1996 compared to 1995. The average yield on these earning
assets was 7.80% compared to 8.20% in 1995. For the nine months ended
September 30, 1996, the average balance of earning assets increased by $167.7
million to $2.13 billion. Included in the tables "Distribution of Assets,
Liabilities and Shareholders' Equity:Interest Rates and Interest Differential"
is a detailed breakdown of TrustCo's average earning assets and interest
bearing liabilities for the three month and nine month periods ended September
30, 1996 and 1995. Unless otherwise noted, the remainder of this discussion
will utilize average balances for 1996 and 1995 as detailed on these tables.
- 8 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1996
Loans
During the third quarter, the average balance of loans increased from $1.20
billion in 1995 to $1.22 billion in 1996, representing a 2.2% increase. The
average yield on the loan portfolio decreased from 9.06% in 1995 to 8.74% in
1996. The combination of the increase in average balance and the reduction in
the yield produced a slight decline in income from the loan portfolio to $26.7
million.
Virtually all of the growth in the loan portfolio was centered in the real
estate loan balances, which increased from $725.8 million for the third
quarter of 1995 to $786.5 million for the comparable 1996 period. TrustCo's
aggressive marketing of these loans, combined with quick decision making on
applications and low closing costs, allowed the Company to grow this portion
of the loan portfolio.
Also during the quarter, the home equity credit line balances decreased 7.9%
from $201.1 million in 1995 to $185.3 million for 1996. The yield on this
portfolio also decreased from 10.14% in 1995 to 9.17% in 1996. The decrease in
yield reflects changes made by TrustCo earlier in the year to respond to
competition which was offering lower overall rates on this product.
Competition for this type of loan product is very strong since all of the
local and national financial institutions try to attract customers to their
home equity loan products.
The same trends noted during the quarter are evident in the year to date
results. Overall, the loan portfolio balances increased by 4.1% to $1.23
billion in 1996. This increase in outstanding balances was offset by a
reduction in the overall yield on the loan portfolio from 9.06% in 1995 to
8.77% in 1996. Income from the loan portfolio for the nine months of 1996
amounted to $80.6 million, an increase of $651 thousand over the comparable
period in 1995.
The Company is a retail oriented institution, and as such, stresses the
importance of consumer oriented products such as the residential mortgage
loan, home equity loan, and credit cards. Each of these areas is an important
contributor to profitability at TrustCo and is a focus of continued marketing
and product development, so as to result in increases in the balances
outstanding. The third quarter and the year to date results reflect this
focus. TrustCo aggressively pursues the fixed rate residential mortgage loan
market. The Company has a long history in underwriting loans in this market
territory and is confident that the average life of these loans is
significantly shorter than the contractual maturity. This asset portfolio is
an excellent investment in relation to the core deposit base that TrustCo
attracts.
Securities Available for Sale
During the third quarter of 1996 the average balance of securities available
for sale was $500.9 million, versus an average balance for 1995 of $350.5
million. The yield earned on these assets in 1996 was 7.68%, compared to 7.44%
in 1995. The change in average balance and the change in rates earned resulted
in an increase in interest income on securities available for sale of $3.1
million. Most of the increase in the balance outstanding
- 9 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1996
was the result of action taken in December 1995 when the Company transferred
the entire held to maturity securities portfolio to the securities available
for sale portfolio as permitted by changes in the accounting for securities.
This action allows the Company to take full advantage of continuing changes in
interest rates to maximize the overall yield on the portfolio while providing
additional liquidity. The maximizing effect is further seen when the 1995
available for sale portfolio yield is combined with the 1995 yield for
investment securities. The resulting combined yield for 1995's third quarter
was 7.32% compared to the 7.68% earned on the comparable portfolio in 1996.
The nine month average balance of securities available for sale was $586.7
million in 1996 with a yield of 7.58%, compared to an average balance for the
nine months of 1995 of $246.6 million and a yield of 7.57%. As with the third
quarter, the year to date results for 1995 compared to 1996 are significantly
affected by the changes made in late 1995 to the portfolio of securities held
to maturity. Therefore, for 1995, if the portfolio of securities available for
sale is combined with the portfolio of securities held to maturity, the
resulting overall yield was 7.34%, compared to the comparable portfolio for
1996 with a yield of 7.58%.
Investment Securities
There are no securities classified as investment securities for 1996. For 1995
the third quarter and the year to date results are detailed on the average
balance tables.
Federal Funds Sold
During the third quarter the average balance of federal funds sold was $439.4
million, compared to $196.9 million in 1995. The yield earned on these asset
balances during the quarter was 5.34% in 1996, and 5.86% in 1995. The yield
earned by these investments is directly tied to the target federal funds rate
as established by the Federal Reserve Board. The increase in the average
balances more than offset the reduction in the average yield, thereby
producing an approximately $3.0 million increase in the interest income on
this investment.
For the nine month results the average balance and yield was $321.8 million
and 5.36% in 1996, and $214.3 million and 5.94% in 1995, respectively.
The increases in the average balances for 1996 compared to 1995 for both the
quarter and year to date results reflect management's decision to remain
relatively liquid during 1996 as market interest rates in the loan and
securities portfolios were fluctuating. This positions TrustCo to take
advantage of these higher rates when the decision is made to reinvest this
excess liquidity.
Income from Earning Assets
Income from earning assets was relatively flat during the third quarter of
1996 compared to 1995. The increase in the average balance of earning assets
during the quarter was offset
- 10 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1996
by the decrease in the yields earned. The year to date results reflect an
increase of 4.7% in the income from earning assets between 1996 and 1995.
Funding Opportunities
TrustCo utilizes various funding sources to support its earning assets
portfolio. The vast majority of the Company's funding comes from traditional
deposit vehicles such as savings, NOW and time deposit accounts. Also, TrustCo
developed a Short Term Investment Account which was introduced during the
second quarter of 1995. This account accepts funds through the Trustco Trust
Department.
Total interest bearing liabilities increased during the quarter from $1.85
billion in 1995 to $1.94 billion in 1996. This increase in balance was offset
by a reduction in cost on these liabilities from 4.59% in 1995 to 4.25% in
1996. The growth in the average balances was principally in the savings
account and NOW account categories of deposits and in the short term
borrowings (principally the Trustco Short Term Investment Account). Likewise,
the average balance of money market certificates, deposits greater than $100
thousand, and the time deposit accounts, decreased during the quarter.
For the year to date results, total interest bearing liabilities increased by
8.2% to $1.92 billion in 1996 compared to 1995. The yield on these liabilities
decreased to 4.27% in 1996, compared to 4.40% in 1995. The increase in average
balances was partially offset by the reduction in yields, thereby producing an
increase of $3.0 million in total interest expense.
Growth in deposit balances resulted from successful marketing and advertising
campaigns undertaken during the first quarter of 1995 in both CD and savings
products, which continued to attract deposits throughout the year. In
TrustCo's past experience, deposits gathered as the result of these types of
campaigns tend to become a very stable source of core customers who maintain
their deposit relationship with the Company through various interest rate
cycles and provide opportunities for cross selling additional banking
services. Trustco has been successful in attracting deposits into the new
branches opened in 1995 and to date in 1996.
Net Interest Income
Taxable equivalent net interest income totalled $21.5 million for the third
quarter of 1996, compared to $20.7 million in 1995. For the nine months of
1996, taxable equivalent net interest income totalled $65.4 million compared
to $62.6 million in 1995.
The net interest margin for the third quarter was 3.98% in 1996 and 4.05% in
1995. For the nine month periods, the net interest margin was 4.08% in 1996
and 4.24 % in 1995.
Nonperforming Assets
Nonperforming assets include nonperforming loans which are those loans in a
nonaccrual status, loans that have been restructured and loans past due 90
days or more and still
- 11 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1996
accruing interest. Also included in the total of nonperforming assets are
foreclosed real estate properties, which are categorized as real estate owned.
Impaired loans are defined as those commercial and commercial real estate
loans in a nonaccrual status and loans restructured since January 1, 1995,
when newly effective accounting standards required changing the
identification, measurement and reporting of impaired loans and loans whose
terms have been modified in a troubled debt restructuring. The following will
describe the nonperforming assets of TrustCo as of September 30, 1996.
Nonperforming loans: Total nonperforming loans were $ 11.4 million at
September 30, 1996, down from $15.7 million at year end 1995, and down from
the $16.7 million at September 30, 1995. Nonaccrual loans were $8.4 million at
September 30, 1996, compared to $12.8 million at year end 1995 and $12.8
million at September 30, 1995. At September 30, 1996, there were $4.9 million
of residential mortgage loans classified as nonaccrual as compared to $3.5
million at year end 1995, and $3.5 million at September 30, 1995. Loans past
due 90 days and still accruing interest were approximately $700 thousand at
September 30, 1996, $1.7 million at year end 1995, and $2.7 million at
September 30, 1995. Restructured loans amounted to $2.2 million at September
30, 1996, $1.1 million at year end 1995, and $1.2 million at September 30,
1995. Changes in the nonperforming loans since year end 1995 have principally
been the transfer of three commercial real estate properties to the category
of foreclosed real estate. Management does not anticipate any loss on the
disposal of these properties.
Total commercial and commercial real estate impaired loans were $3.5 million
at September 30, 1996, and together with the newly restructured retail loans
of $2.2 million, represent the Company's impaired loans at September 30, 1996.
Of the $11.4 million nonperforming loans at September 30, 1996, $5.7 million
were identified as being impaired, leaving $5.6 million of loans that were
nonperforming retail loan products and commercial loans that were past due
more than 90 days and still accruing interest. TrustCo does not consider these
to be impaired loans.
The average balance of loans identified as impaired during 1996 was $8.4
million and the interest income earned on the loans classified as impaired at
September 30, 1996, was approximately $243,000.
For the nine months of 1996, charge offs were as follows:
Commercial loans $2.6 million
Installment credit .7 million
Mortgage loans 1.0 million
Recoveries for the same period were $2.0 million.
- 12 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1996
Real estate owned: Total real estate owned increased from the year end balance
of $3.7 million to $6.6 million at September 30, 1996. Real estate owned at
September 30, 1995 was $3.1 million. As noted previously, the increase in the
balance outstanding between year end 1995 and September 30, 1996, is the
result of three commercial properties being placed in foreclosure during this
period.
Allowance for loan losses: The balance of the allowance for loan losses is
maintained at a level that is, in management's judgment, representative of the
amount of the risk inherent in the loan portfolio, given past, present and
expected future conditions.
At September 30, 1996, the allowance for loan losses was $50.9 million, an
increase of $2.6 million from the year end 1995 balance of $48.3 million. This
allowance represents a reserve coverage of 4.5 times the nonperforming loans
at September 30, 1996, compared to 3.1 times coverage at year end 1995 and 2.8
times coverage at September 30, 1995. The provision charged to expense during
the year was $4.9 million in 1996, compared to $9.7 million in 1995.
Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands.
TrustCo's earnings performance and strong capital position enable the Company
to raise funds easily in the marketplace and to secure new sources of funding.
The Company actively manages its liquidity through target ratios established
under its liquidity policies. Continual monitoring of both historical and
prospective ratios allows TrustCo to employ strategies necessary to maintain
adequate liquidity. Management has also defined various degrees of adverse
liquidity situations which could potentially occur, and has prepared
appropriate contingent plans should such a situation arise.
Noninterest Income
Total noninterest income for the three months ended September 30, 1996 was
$2.4 million compared to $3.6 million in 1995. For 1996 the Company recorded
$1.3 million of net securities losses during the third quarter, compared to
approximately $141,000 of net securities gains in 1995. Therefore once these
securities transactions are eliminated, the 1996 noninterest income was $3.7
million compared to $3.5 million in 1995. Likewise for the nine months ended
September 30, 1996, total noninterest income (excluding the effects of net
securities transactions) was $10.9 million, compared to $10.3 million in 1995.
Noninterest Expenses
Total noninterest expense for the third quarter of 1996 was $10.2 million
compared to $10.7 million in 1995. The decrease in occupancy expense and the
reduced cost of operating and disposing of other real estate were the
principal reasons for the overall decrease in noninterest expense during the
two time periods.
- 13 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1996
For the first nine months of 1996, noninterest expense amounted to $31.4
million compared to $34.3 million in 1995. Similar to the quarter results, the
decrease in total noninterest expense was due principally to a reduction in
FDIC insurance expense and expenses associated with other real estate.
Income Taxes
In the third quarter of 1996 and 1995, TrustCo recognized $ 4.6 million and
$3.3 million, respectively, of income tax expense. This resulted in an
effective tax rate of 37.9% in 1996 and 33.6% in 1995. For the nine months of
1996, total tax expense was $12.7 million compared to $9.5 million for 1995.
Capital Resources
Consistent with its long-term goal of operating a sound and profitable
financial organization, TrustCo strives to maintain strong capital ratios. New
issues of equity securities have not been required since traditionally, most
of its capital requirements are met through the capital retention program.
Total shareholders' equity at September 30, 1996 was $157.7 million down 1.5%
from year end 1995. The change in shareholders' equity between year end 1995
and September 30, 1996 reflects the net income retained in TrustCo (after
shareholders' dividend payments) offset by the reduction in the net unrealized
appreciation on securities available for sale of $9.7 million. Excluding the
effect of the FASB 115 adjustment (mark to market on the available for sale
securities), shareholders' equity was $147.7 million at year end 1995 and
$155.0 million at September 30, 1996.
TrustCo declared dividends of $0.72 per share so far in 1996, compared to
$0.64 in 1995. These resulted in a dividend payout ratio of 69.3% in 1996 and
69.4% in 1995. The Company achieved the following ratios as of September 30,
1996 and 1995:
September 30, Minimum Regulatory
1996 1995 Guidelines
Tier 1 risk adjusted
capital 12.96 12.27 4.00
Total risk adjusted
capital 14.25 13.55 8.00
In addition, at September 30, 1996 and 1995, the consolidated equity to asset
ratio (excluding the mark to market on the securities available for sale) was
6.91% and 6.82%, respectively.
- 14 -
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average
balance sheet, related interest income and expense and the average annualized
yields on interest-earning assets and annualized rates on interest-bearing
libilities of TrustCo (adjusted for tax equivalency) for each of the reported
periods. Nonaccrual loans are included in loans for this analysis. The average
balances of securities available for sale is calculated using amortized
costs for these securities. Included in the balance of shareholders' equity is
unrealized appreciation, net of tax, in the available for sale portfolio of
$1.8 million in 1996 and $3.9 million in 1995.
Third Quarter Third Quarter
1996 1995
--------------------------- --------------------------- ------------------------------
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans.....................$ 219,552 $ 5,176 9.42% $ 236,321 $ 5,695 9.62% (519) (401) (118)
Residential mortgage loans........... 786,472 16,275 8.28% 725,836 15,275 8.42% 1,000 2,534 (1,534)
Home equity lines of credit ......... 185,251 4,272 9.17% 201,100 5,137 10.14% (865) (392) (473)
Installment loans.................... 31,316 1,020 12.95% 33,372 1,050 12.48% (30) (214) 184
--------- ------ --------- ------ ----- ----- -----
Loans, net of unearned income........ 1,222,591 26,743 8.74% 1,196,629 27,157 9.06% (414) 1,527 (1,941)
Securities available for sale:
U.S. Treasuries and agencies........ 350,188 6,874 7.85% 312,604 5,925 7.58% 949 732 217
Mortgage-backed securities.......... 29,007 595 8.21% --- --- --- 595 595 ---
States and political subdivisions... 81,980 1,632 7.96% 17,344 361 8.31% 1,271 1,329 (58)
Other .............................. 39,767 522 5.24% 20,555 234 4.53% 288 246 42
--------- ------ --------- ------ ----- ----- -----
Total securities available for sale 500,942 9,623 7.68% 350,503 6,520 7.44% 3,103 2,902 201
Investment securities:
U.S. Treasuries and agencies........ --- --- --- 120,985 2,280 7.54% (2,280) (2,280) ---
Mortgage-backed securities.......... --- --- --- 126,425 2,112 6.68% (2,112) (2,112) ---
States and political subdivisions... --- --- --- 43,410 805 7.42% (805) (805) ---
Other .............................. --- --- --- 15,014 294 7.85% (294) (294) ---
--------- ------ --------- ------ ----- ----- -----
Total investment securities....... --- --- --- 305,834 5,491 7.18% (5,491) (5,491) ---
Federal funds sold................... 439,380 5,898 5.34% 196,891 2,908 5.86% 2,990 4,695 (1,705)
--------- ------ --------- ------ ----- ----- -----
Total Interest earning assets...... 2,162,913 42,264 7.80% 2,049,857 42,076 8.20% 188 3,633 (3,445)
Allowance for loan losses............ (51,140) ------ (46,187) ------ ----- ----- -----
Cash and non-interest earning assets. 133,476 124,155
--------- ---------
Total assets.......................$2,245,249 $ 2,127,825
========= =========
Liabilities and shareholders' equity Time deposits:
Interest-bearing checking:
NOW accounts .....................$ 234,845 908 1.54% $ 229,660 1,107 1.91% (199) 157 (356)
Money market accounts............. 71,118 523 2.92% 77,729 566 2.89% (43) (84) 41
Savings............................. 677,234 5,845 3.43% 621,015 6,386 4.08% (541) 2,721 (3,262)
CD's over $100 thousand............. 84,773 1,216 5.71% 87,515 1,347 6.10% (131) (42) (89)
Other time deposits................. 759,171 10,887 5.71% 783,230 11,359 5.75% (472) (371) (101)
--------- ------ --------- ------ ----- ----- -----
Total time deposits................ 1,827,141 19,379 4.22% 1,799,149 20,765 4.58% (1,386) 2,381 (3,767)
Short-term borrowings................ 117,769 1,406 4.75% 52,427 642 4.86% 764 863 (99)
Long-term debt....................... --- --- --- --- --- ---
--------- ------ --------- ------ ----- ----- -----
Total interest-bearing liabilities. 1,944,910 20,785 4.25% 1,851,576 21,407 4.59% (622) 3,244 (3,866)
Demand deposits...................... 116,275 ------ 101,113 ------ ----- ----- -----
Other liabilities.................... 30,791 28,908
Shareholders' equity................. 153,273 146,228
--------- ---------
Total liab. & shareholders' equity.$2,245,249 $ 2,127,825
========= =========
Net interest income.................. 21,479 20,669 810 389 421
------ ------ ----- ----- -----
Net interest spread.................. 3.55% 3.61%
Net interest margin (net interest
income to total interest earning
assets)........................... 3.98% 4.05%
Tax equivalent adjustment 674 570
------ ------
Net interest income per book...... $ 20,805 $ 20,099
====== ======
-15-
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average
balance sheet, related interest income and expense and the average annualized
yields on interest-earning assets and annualized rates on interest-bearing
libilities of TrustCo (adjusted for tax equivalency) for each of the reported
periods. Nonaccrual loans are included in loans for this analysis. The average
balances of securities available for sale is calculated using amortized
costs for these securities. Included in the balance of shareholders' equity is
unrealized appreciation, net of tax, in the available for sale portfolio of
$5.2 million in 1996 and $2.4 million in 1995.
Nine Months Nine Months
1996 1995
---------------------------- ---------------------------- ------------------------------
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans.....................$ 226,399 $ 15,900 9.37% $ 237,815 $ 16,940 9.50% (1,040) (800) (240)
Residential mortgage loans........... 779,004 48,563 8.31% 702,245 44,281 8.41% 4,282 5,094 (812)
Home equity lines of credit ......... 188,478 13,014 9.22% 204,181 15,604 10.22% (2,590) (1,143) (1,447)
Installment loans.................... 31,834 3,150 13.22% 33,213 3,151 12.68% (1) (177) 176
--------- ------- --------- ------- ----- ----- -----
Loans, net of unearned income........ 1,225,715 80,627 8.77% 1,177,454 79,976 9.06% 651 2,974 (2,323)
Securities available for sale:
U.S. Treasuries and agencies........ 418,007 24,153 7.70% 219,146 12,606 7.67% 11,547 11,491 56
Mortgage-backed securities.......... 53,227 3,029 7.59% --- --- --- 3,029 3,029 ---
States and political subdivisions... 74,698 4,383 7.82% 9,187 568 8.25% 3,815 3,854 (39)
Other .............................. 40,719 1,765 5.78% 18,257 823 6.02% 942 998 (56)
--------- ------- --------- ------- ----- ----- -----
Total securities available for sale 586,651 33,330 7.58% 246,590 13,997 7.57% 19,333 19,372 (39)
Investment securities:
U.S. Treasuries and agencies........ --- --- --- 137,185 7,662 7.45% (7,662) (7,662) ---
Mortgage-backed securities.......... --- --- --- 131,920 6,636 6.71% (6,636) (6,636) ---
States and political subdivisions... --- --- --- 43,962 2,438 7.39% (2,438) (2,438) ---
Other .............................. --- --- --- 15,013 883 7.85% (883) (883) ---
--------- ------ --------- ------- ----- ----- -----
Total investment securities....... --- --- --- 328,080 17,619 7.16% (17,619) (17,619) ---
Federal funds sold................... 321,781 12,911 5.36% 214,330 9,525 5.94% 3,386 4,919 (1,533)
--------- ------- --------- ------- ----- ----- -----
Total Interest earning assets...... 2,134,147 126,868 7.93% 1,966,454 121,117 8.22% 5,751 9,646 (3,895)
Allowance for loan losses............ (50,956) ------- (43,764) ------- ----- ----- -----
Cash and non-interest earning assets. 131,098 122,544
--------- ---------
Total assets.......................$2,214,289 $ 2,045,234
========= =========
Liabilities and shareholders' equity Time deposits:
Interest-bearing checking:
NOW accounts .....................$ 234,160 2,701 1.54% $ 231,163 3,260 1.89% (559) 69 (628)
Money market accounts............. 70,354 1,535 2.91% 81,949 1,763 2.88% (228) (265) 37
Savings............................. 668,662 17,278 3.45% 612,219 17,693 3.86% (415) 2,148 (2,563)
CD's over $100 thousand............. 86,755 3,711 5.71% 80,731 3,514 5.82% 197 295 (98)
Other time deposits................. 767,916 32,991 5.74% 738,427 31,172 5.64% 1,819 1,281 538
--------- ------- --------- ------- ----- ----- -----
Total time deposits................ 1,827,847 58,216 4.25% 1,744,489 57,402 4.40% 814 3,528 (2,714)
Short-term borrowings................ 92,891 3,236 4.65% 29,957 1,019 4.55% 2,217 2,192 25
Long-term debt....................... --- --- --- 1,053 69 8.75% (69) (69) ---
--------- ------- --------- ------- ----- ----- -----
Total interest-bearing liabilities. 1,920,738 61,452 4.27% 1,775,499 58,490 4.40% 2,962 5,651 (2,689)
Demand deposits...................... 110,242 ------- 96,208 ------- ----- ----- -----
Other liabilities.................... 28,954 30,011
Shareholders' equity................. 154,355 143,516
--------- ---------
Total liab. & shareholders' equity.$2,214,289 $ 2,045,234
========= =========
Net interest income.................. 65,416 62,627 2,789 3,995 (1,206)
------- ------- ----- ----- -----
Net interest spread.................. 3.66% 3.82%
Net interest margin (net interest
income to total interest earning
assets)........................... 4.08% 4.24%
Tax equivalent adjustment 1,948 1,548
------- -------
Net interest income per book...... $ 63,468 $ 61,079
======= =======
-16-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
Date: November 12, 1996 By: /s/Robert A. McCormick
-----------------------------------------
Robert A. McCormick
President and
Chief Executive Officer
Date: November 12, 1996 By: /s/Robert T. Cushing
-----------------------------------------
Robert T. Cushing
Vice President and Chief
Financial Officer
- 17 -