UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 STATE STREET, SCHENECTADY, NEW YORK 12305
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of
the Act:
Name of exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of
the Act:
(Title of class)
Common
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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 October 31, 1997
--------------------------- ---------------------
$1 Par Value 23,422,929
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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, 1997 and 1996
Consolidated Statements of Financial Condition 2
as of September 30, 1997 and December 31,
1996
Consolidated Statements of Cash Flows for the 3 - 4
Nine Months Ended September 30, 1997 and
1996
Notes to Consolidated Interim Financial 5 - 6
Statements
Independent Auditors' Report 7
Item 2. Management's Discussion and Analysis 8 - 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities --None
Item 4. Submissions of Matters to Vote of Security
Holders -- None
Item 5. Other Information -- None
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Reg S-K (Item 601)
Exhibit No. Description Page No.
--------- -------------------------------- --------
10(a) Amendment No. 1 to Restatement of Trustco 20
Bank Executive Officer Incentive Plan dated
October 21, 1997 is filed herewith
(b) Reports on Form 8-K
Filing of Form 8-K on August 19, 1997, of press release announcing quarterly
dividend, payable October 1, 1997, and the issuance of a 15% stock split to be
distributed November 14, 1997, incorporated herein by reference.
Filing of Form 8-K on October 22, 1997, of two press releases detailing third
quarter 1997 results, incorporated herein by reference.
- ii -
TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(Dollars in Thousands)
3 Months Ended 9 Months Ended
Sept 30 Sept 30
1997 1996 1997 1996
Interest income:
Interest and fees on loans $ 27,541 26,642 81,441 80,315
Interest on U. S. Treasuries and agencies 6,685 6,840 21,710 23,990
Interest on states and political
subdivisions 1,482 1,117 4,096 3,000
Interest on mortgage-backed securities 3,141 595 6,919 3,029
Other 437 498 1,301 1,675
Interest on federal funds sold 4,360 5,898 12,937 12,911
---------------- ----------- ---------------- -----------
Total interest income 43,646 41,590 128,404 124,920
---------------- ----------- ---------------- -----------
Interest expense:
Interest on deposits:
Interest-bearing checking 910 908 2,694 2,701
Savings 5,734 5,845 16,985 17,278
Money market deposit accounts 433 523 1,310 1,535
Certificates of deposit of $100,000 or more 1,531 1,216 4,268 3,711
Other time 11,997 10,887 34,923 32,991
Interest on short-term borrowings 1,429 1,406 4,119 3,236
---------------- ----------- ---------------- -----------
Total interest expense 22,034 20,785 64,299 61,452
---------------- ----------- ---------------- -----------
Net interest income 21,612 20,805 64,105 63,468
Provision for loan losses 1,345 943 3,740 4,907
---------------- ----------- ---------------- -----------
Net interest income after provision
for loan losses 20,267 19,862 60,365 58,561
---------------- ----------- ---------------- -----------
Noninterest income:
Trust department income 1,657 1,391 4,927 4,179
Fees for other services to customers 1,970 1,707 5,652 5,162
Net loss on securities available for sale (19) (1,291) (809) (4,342)
Other 718 602 1,901 1,562
---------------- ----------- ---------------- -----------
Total noninterest income 4,326 2,409 11,671 6,561
---------------- ----------- ---------------- -----------
Noninterest expenses:
Salaries and employee benefits 5,669 5,333 17,166 15,951
Net occupancy expense 1,530 970 3,832 3,200
Equipment expense 881 780 2,932 2,439
FDIC insurance expense 62 --- 185 2
Professional services 675 1,053 2,743 2,716
Other real estate expenses 9 69 304 434
Other 2,285 2,043 6,740 6,627
---------------- ----------- ---------------- -----------
Total noninterest expenses 11,111 10,248 33,902 31,369
---------------- ----------- ---------------- -----------
Income before taxes 13,482 12,023 38,134 33,753
Applicable income taxes 4,999 4,556 14,205 12,688
---------------- ----------- ---------------- -----------
Net income $ 8,483 7,467 23,929 21,065
================ =========== ================ ===========
* Earnings per Common Share:
Net income $ 0.35 0.31 0.98 0.87
================ =========== ================ ===========
* Average equivalent shares outstanding (000s omitted) 24,576 24,179 24,437 24,113
================ =========== ================ ===========
* Share data has been adjusted for the 15% stock split declared August, 1997.
See accompanying notes to consolidated interim financial statements.
-1-
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
09/30/97 12/31/96
(Unaudited)
ASSETS:
Cash and due from banks $ 40,807 45,779
Federal funds sold 316,000 310,000
------------------ ------------------
Total cash and cash equivalents 356,807 355,779
Securities available for sale:
U. S. Treasuries and agencies 319,046 406,933
States and political subdivisions 113,082 96,918
Mortgage-backed securities 191,821 76,493
Other 41,336 38,326
------------------ ------------------
Total securities available for sale 665,285 618,670
------------------ ------------------
Loans:
Commercial 197,587 223,116
Residential mortgage loans 876,543 803,128
Home equity line of credit 175,688 183,832
Installment loans 30,344 33,259
------------------ ------------------
Total loans 1,280,162 1,243,335
------------------ ------------------
Less:
Allowance for loan losses 52,684 51,561
Unearned income 1,340 1,453
------------------ ------------------
Net loans 1,226,138 1,190,321
Bank premises and equipment 22,564 23,098
Real estate owned 10,073 6,518
Other assets 63,632 67,394
------------------ ------------------
Total assets $ 2,344,499 2,261,780
================== ==================
LIABILITIES:
Deposits:
Demand $ 128,710 123,553
Interest-bearing checking 230,722 236,264
Savings accounts 654,586 661,915
Money market deposit accounts 58,016 61,131
Certificates of deposit (in denominations of
$100,000 or more) 107,857 89,793
Other time 819,357 780,490
------------------ ------------------
Total deposits 1,999,248 1,953,146
Short-term borrowings 129,198 111,662
Accrued expenses and other liabilities 40,691 34,572
------------------ ------------------
Total liabilities 2,169,137 2,099,380
------------------ ------------------
SHAREHOLDERS' EQUITY:
Capital stock par value $1;50,000,000 shares authorized
September 30, 1997 and December 31, 1996,
and 21,027,889 and 20,959,376 shares issued
September 30, 1997 and December 31, 1996, respectively 21,028 20,959
Surplus 114,950 114,228
Undivided profits 30,326 23,221
Net unrealized gain on securities available for sale 12,442 5,239
Treasury stock at cost - 658,180 and 571,142 shares at
September 30, 1997 and December 31, 1996, respectively (3,384) (1,247)
------------------ -------------------
Total shareholders' equity 175,362 162,400
------------------ -------------------
Total liabilities and shareholders' equity $ 2,344,499 2,261,780
================== ===================
See accompanying notes to consolidated interim financial statements.
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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, 1997 1996
-------- --------
Cash flows from operating activities:
Net income............................................... 23,929 21,065
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,529 2,269
Provision for loan losses................................ 3,740 4,907
Loss on sale of securities available for sale.................. 973 7,546
Gain on sale of securities available for sale.................. (164) (3,204)
Increase in taxes receivable........................... (1,714) (6,393)
Increase in interest receivable........................... (745) (271)
Decrease in interest payable........................... (23) (51)
Decrease in other assets................................... 3,852 787
Increase in accrued expenses........................... 6,140 3,836
-------- --------
Total adjustments 14,588 9,426
-------- --------
Net cash provided by operating activities................ 38,517 30,491
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale.......... 106,908 365,606
Purchase of securities available for sale................... (291,691) (396,924)
Proceeds from maturities and calls
of securities avail for sale............................. 149,470 91,022
Net increase in loans.................................. (48,654) (8,210)
Proceeds from sales of real estate owned............... 3,003 3,806
Capital expenditures................................... (1,995) (882)
-------- --------
Net cash provided by/(used in) investing activities................ (82,959) 54,418
-------- --------
Cash flows from financing activities:
Net increase in deposits............................... 46,102 1,080
Increase in short-term borrowing........................ 17,536 68,307
Proceeds from issuance of common stock................. 786 930
Proceeds from sale of treasury stock................... 2,081 ---
Purchase of treasury stock............................. (4,213) (156)
Dividends paid......................................... (16,822) (14,574)
-------- --------
Net cash provided by financing activities................ 45,470 55,587
-------- --------
Net increase in cash and cash equivalents................ 1,028 140,496
Cash and cash equivalents at beginning of period............ 355,779 289,889
-------- --------
Cash and cash equivalents at end of period..............$ 356,807 430,385
======== ========
See accompanying notes to consolidated interim financial statements. (Continued)
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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, 1997 1996
-------- --------
Interest paid.......................................... 64,322 61,503
Income taxes paid...................................... 15,919 18,914
Transfer of loans to real estate owned................. 9,097 7,203
Increase in dividends payable.......................... 2 24
Change in unrealized (gain)/loss on securities
available for sale-gross.............................. (12,111) 16,499
Change in deferred tax effect on unrealized gain/(loss)
on securities available for sale...................... 4,908 (6,811)
See accompanying notes to consolidated interim financial statements.
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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, 1997, the results of operations for the three months and nine months ended
September 30, 1997 and 1996, and the cash flows for the nine months ended
September 30, 1997 and 1996. 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 1996 Annual Report to Shareholders on Form
10-K.
2. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(Statement 128), which establishes standards for computing and presenting
earnings per share (EPS). This statement simplifies the standards for
computing EPS and supersedes Accounting Principals Board Opinion No. 15,
"Earnings per Share" and related interpretations. Statement 128 replaces the
presentation of primary EPS with the presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation.
Basic EPS is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity (such as the Company's stock options). This Statement
is effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Earlier application is not permitted.
This Statement requires restatement of all prior-period EPS data presented.
Management does not anticipate that the adoption of Statement 128 will
materially impact EPS.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 129, "Disclosure of Information about Capital Structure" (Statement 129),
which establishes standards for disclosure about a company's capital
structure. In accordance with Statement 129, companies will be required to
provide in the financial statements a complete description of all aspects of
their capital structure, including call and put
- 5 -
features, redemption requirements and conversion options. The disclosures
required by Statement 129 are for financial statements for periods ending
after December 15, 1997. Management anticipates providing the required
information in the 1997 annual consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ( Statement 130) , which establishes
standards for reporting and display of comprehensive income. Statement 130
states that comprehensive income includes the reported net income of a company
adjusted for items that are currently accounted for as direct entries to
equity, such as the mark to market adjustment on securities available for
sale, foreign currency items and minimum pension liability adjustments. This
statement is effective for fiscal years beginning after December 15, 1997.
Management anticipates developing the required information for inclusion in
the 1998 consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(Statement 131) which establishes standards for reporting by public companies
about operating segments of their business. Statement 131 also establishes
standards for related disclosures about products and services, geographic
areas and major customers. This statement is effective for periods beginning
after December 15, 1997. Management anticipates developing the required
information for inclusion in the 1998 annual consolidated financial
statements.
- 6 -
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, 1997, and the
related consolidated statements of income for the three month and nine month
periods ended September 30, 1997 and 1996, and the consolidated statements of
cash flows for the nine month periods ended September 30, 1997 and 1996. 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, 1996 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 24,
1997, 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, 1996, 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 10, 1997
- 7 -
TrustCo Bank Corp NY
Management's Discussion and Analysis
September 30, 1997
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,
1997, with comparisons to 1996 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 1996 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 declared in August 1997.
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which
are not historical or current facts, are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, and are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. TrustCo wishes to caution readers
not to place undue reliance on any such forward-looking statements, which
speak only as of the date made. The following important factors, among others,
in some cases have affected and in the future could affect TrustCo's actual
results, and could cause TrustCo's actual financial performance to differ
materially from that expressed in any forward-looking statement: (1) credit
risk, (2) interest rate risk, (3) competition, (4) changes in the regulatory
environment, and (5) changes in general business and economic trends. The
foregoing list should not be construed as exhaustive, and the Company
disclaims any obligation subsequently to revise any forward- looking
statements to reflect events or circumstances after the date of such
statements, or to reflect the occurrence of anticipated or unanticipated
events.
Following this discussion is the table "Distribution of Assets, Liabilities
and Shareholders' Equity: Interest Rates and Interest Differential" which
gives a detailed breakdown of TrustCo's average interest earning assets and
interest bearing liabilities for the three months and nine months ended
September 30, 1997 and 1996.
Overview
TrustCo recorded net income of $8.5 million, or $0.35 per share for the three
month period ended September 30, 1997, as compared to net income of $7.5
million and per share earnings of $0.31 for the same time period in 1996. For
the nine months ended September 30, 1997, TrustCo recorded net income of $23.9
million or $0.98 per share compared to $21.1 million and $0.87 per share in
the comparable period in 1996.
- 8 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1997
The primary factors accounting for the year to date increase in net income
are:
_
|_| A 3% increase in average earning assets to $2.19 billion,
|_| A 9% increase in the average balance of noninterest bearing sources
_ of funds,
|_| Reduction in the provision for loan losses by $1.2 million, and
|_| An increase in noninterest income of $1.6 million
(excluding net losses on securities transactions).
These positive factors affecting net income were offset by the following:
_
|_| A 4 basis point decrease in the net interest margin to 4.04%,
|_| A $2.5 million increase in noninterest expenses and
|_| A $1.5 million increase in income tax expense.
Asset/Liability Management
TrustCo 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
The average balance of earning assets increased by $65.1 million to $2.23
billion during the third quarter of 1997 compared to 1996. The average yield
on earning assets was 7.97% in 1997 and 7.80% in 1996. For the nine months
ended September 30, 1997, earning assets increased by $57.3 million to $2.19
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, 1997 and 1996.
Loans
Total loans increased from $1.22 billion for the third quarter of 1996 to
$1.27 billion for 1997, which is a increase of $43.8 million. The average
yield on the loan portfolio was 8.74% in 1996 and 8.71% in 1997. Total
interest income increased to $27.6 million for the third quarter 1997 as
compared to $26.7 million for the same period in 1996.
For the nine months ended September 30, 1997, the average balance in the loan
portfolio was $1.25 billion, an increase of $25.2 million over the balance of
$1.23 billion for the comparable period in 1996. The average yield on the loan
portfolio decreased by 6 basis points to 8.71% in 1997 compared to 8.77% in
1996. Total interest income increased to $81.7 million for the nine months of
1997 as compared to $80.6 million for the same period in 1996.
- 9 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1997
Virtually all of the increase during the third quarter and year to date 1997
was concentrated in the residential mortgage loan portfolio. For the quarter,
the average balance of residential mortgage loans was $860.1 million during
1997 versus $786.5 million in 1996. The average yield on the residential loan
portfolio was 8.24% in 1997 down 4 basis points from the average yield of
8.28% in 1996. The increase in the average balance outstanding more than
offset the reduction in the yield thereby producing an increase of $1.4
million in interest income on the residential loan portfolio to $17.7 million
in 1997. Similar changes were noted in the year to date September 30 balances
with total residential loans increasing by $54.1 million to $833.1 million in
1997. The average yield for the nine month periods were 8.25% in 1997 and
8.31% in 1996. As with the third quarter, the increase in the average balance
of residential loans outstanding more than offset the decrease in the average
yield, thereby producing an increase in interest income of $3.0 million.
TrustCo aggressively markets the residential mortgage loan product and has
distinguished itself as a market leader for this product. The marketing
focuses on the low closing cost, quick decision making and the company's local
presence in helping to distinguish TrustCo from other residential mortgage
loan originators.
Commercial loans decreased by $18.9 million during the quarter from $219.6
million for the third quarter of 1996 to $200.7 million for the comparable
period in 1997. The average yield on the commercial loan portfolio increased
during the quarter by 11 basis points from 9.42% in 1996 to 9.53% in 1997.
Total interest income decreased by approximately $400 thousand. The same
trends noted for the quarter were also noted for the year to date balance.
Home equity credit lines decreased $8.9 million during the quarter from $185.3
million in 1996 to $176.3 million in 1997. The average yield increased 25
basis points to 9.42% in 1997 from 9.17% in 1996. The decrease in the average
balance of outstanding loans was almost completely offset by the increase in
the average yields, thereby producing $4.2 million in interest income on the
home equity loan portfolio in 1997. The same trends noted during the quarter
were also noted for the nine month periods.
TrustCo is a retail oriented institution, and as such, stresses the importance
of consumer oriented products such as residential mortgage loans, home equity
loans, and home equity lines of credit. Each of these areas is an important
contributor to profitability at TrustCo, and is the focus of continued
marketing and product development. The third quarter and year to date results
reflect this focus and also highlight the competitive environment TrustCo
operates in with respect to new loan originations. TrustCo competes with
numerous national, regional and locally based financial institutions for new
loan and deposit business. Recently, other financial institutions have made
changes to their loan underwriting standards in an effort to maintain or
increase loan originations. TrustCo has decided not to pursue this strategy,
but instead to focus on its strengths which are: local decision making, loan
pricing, speed of
- 10 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1997
closing and low closing costs. This focus has been immensely successful,
especially in the residential loan market.
Securities Available for Sale
The average balance of securities available for sale during the third quarter
was $653.0 million for 1997 and $500.9 in 1996. The yield on this portfolio
was 2 basis points less in 1997 at 7.66% compared to 7.68% in 1996. Interest
income on securities available for sale was $12.5 million in 1997 compared to
$9.6 million in 1996. During the third quarter the average balance of mortgage
backed securities increased by $139.4 million and municipal securities
increased by $25.3 million.
For the nine month period the average balance of securities available for sale
increased from $586.7 million in 1996 to $626.7 million in 1997. The average
yield increased 11 basis points to 7.69% in 1997 from 7.58% in 1996. Interest
income on securities available for sale increased to $36.1 million from $33.3
million in 1996. Similar trends occurred during the nine month period as was
noted previously for the third quarter.
Federal Funds Sold
During the third quarter the average balance of federal funds sold decreased
to $308.6 million from $439.4 million in 1996. The average yield during the
quarter was 5.61% in 1997 and 5.34% in 1996. The increased yield reflects the
changes made during 1996 and 1997 in the target federal funds rate as
established by the Federal Reserve Bank. Interest income on federal funds sold
was $4.4 million in 1997 and $5.9 million in 1996.
For the nine month period, the average balance of federal funds sold was $
313.9 million for 1997 as compared to $321.8 million for 1996. The average
yield was 5.51% in 1997 and 5.36% in 1996.
TrustCo maintains a significant amount of liquidity in the form of federal
funds sold. Management made that decision in light of interest rates available
in the market place for alternative loan and securities products. When deemed
appropriate by management, the excess federal funds sold will be used to fund
loan growth, securities or deposit activities.
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, interest bearing checking, and time deposit
accounts. Also, TrustCo has a Short-Term Investment Account which is available
exclusively to customers of the Trust Department.
- 11 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1997
During the third quarter the average balance of deposit accounts increased to
$2.0 billion in 1997 compared to $1.9 billion in 1996, an increase of
approximately 3%. The yield on interest bearing deposit accounts increased to
4.36% for 1997 compared to 4.22% in 1996. This in turn had the effect of
increasing interest expense on deposit accounts to $ 20.6 million in 1997 from
$19.4 million in 1996. Within the category of interest bearing deposit
accounts, certificates of deposits increased by 8.8% to $918.3 million for the
third quarter of 1997. During the third quarter demand deposit balances
increased to $123.6 million, an increase of 6% over the third quarter of 1996.
The average balance of the Short-Term investment account increased slightly
during the third quarter of 1997 to $118.1 million. The yield on this account
increased to 4.80% from 4.75% in 1996.
For the nine months of 1997 the average balance of deposit accounts increased
to $1.97 billion, an increase of $34.7 million, as compared to the comparable
period in 1996. Interest bearing deposits increased to $1.85 billion from
$1.83 billion in 1996. The yield on interest bearing deposits increased to
4.34% in 1997 as compared to 4.25% in 1996. Demand deposits increased to
$118.4 million during 1997 compared to $110.2 million in 1996.
The average balance of the Short-Term investment account increased to $115.9
million for the nine month period ended September 30, 1997 compared to $92.9
million for the comparable period in 1996. The yield on this account increased
to 4.75%, up 10 basis points over the 4.65% yield in 1996.
Growth in deposit balances resulted from successful marketing and advertising
campaigns undertaken in 1997. In addition, new branches opened since 1995
continue to attract new customer accounts. TrustCo is successful in attracting
depositors as a result of the yields on deposit accounts, the high quality of
customer service and the convenience of 51 full service branch locations.
TrustCo attracts customers most interested in traditional banking products and
a branch delivery mechanism.
Net Interest Income
Taxable equivalent net interest income increased to $22.4 million for the
third quarter 1997 compared to $21.5 million in 1996. The net interest spread
during the third quarter was 3.58% in 1997 compared to 3.55% in 1996, and the
net interest margin increased from 3.98% in 1996 to 4.05% in 1997.
For the nine month period, taxable equivalent net interest income increased to
$66.5 million in 1997 compared to $65.4 million in 1996. Net interest spread
decreased 6 basis points to 3.60% in 1997 compared to 3.66% in 1996. Net
interest margin decreased slightly to 4.04% in 1997 from 4.08% for the nine
months of 1996.
- 12 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1997
Nonperforming Assets
Nonperforming assets include nonperforming loans which are those loans in a
nonaccrual status, loans that have been restructured and loans past due 90
days or more and still accruing interest. Also included in the total of
nonperforming assets are foreclosed real estate properties which are
categorized as real estate owned.
Impaired loans are defined as those commercial and commercial real estate
loans on 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, 1997.
Nonperforming Loans: Total nonperforming loans were $10.5 million at September
30, 1997 down approximately $800 thousand from September 30, 1996. Nonaccrual
loans were $6.0 million at September 30, 1997 compared to $8.4 million for the
same time period in 1996. Loans past due 90 days and still accruing interest
were $960 thousand at September 30, 1997 and $730 thousand in 1996.
Restructured loans were $3.5 million at September 30, 1997 and $2.2 million
for the same time period in 1996.
Total commercial and commercial real estate impaired loans were $140 thousand
at September 30, 1997, and together with the newly restructured retail loans
of $4.0 million, represent the Company's impaired loans at September 30, 1997.
The average balance of impaired loans during 1997 was $6.6 million. The
Company recognized approximately $300 thousand of interest income on these
impaired loans through September 30, 1997.
Real estate owned: Total real estate owned increased to $10.1 million at
September 30, 1997 from $6.6 million at September 30, 1996. The increase
between September 30, 1996 and 1997 is due to the acquisition of two
commercial real estate properties during 1997 and the increase in residential
real estate properties by $720 thousand. The increase in residential real
estate foreclosures is an indication of the economic stress that the Upstate
New York area is suffering as a result of corporate downsizing, relocating of
state employees and the overall lack of growth in the area.
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 risk inherent in the loan portfolio, given past, present and
expected future conditions.
At September 30, 1997 the allowance for loan losses was $52.7 million, which
was an increase of $1.8 million from the balance at September 30, 1996. The
allowance represents 4.12% of the loan portfolio at September 30, 1997 , down
slightly from 4.16% in 1996.
- 13 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1997
Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands.
TrustCo's earnings performance and strong capital position enable the Company
to raise funds easily in the marketplace and to secure new sources of funding.
The Company actively manages its liquidity through target ratios established
under its liquidity policies. Continual monitoring of both historical and
prospective ratios allows TrustCo to employ strategies necessary to maintain
adequate liquidity. Management has also defined various degrees of adverse
liquidity situations which could potentially occur, and has prepared
appropriate contingency plans should such a situation arise.
Noninterest Income
Total noninterest income for the third quarter of 1997 was $4.3 million
compared to $2.4 million for the same time period in 1996. Without the effects
of securities transactions the third quarter noninterest income would have
been $4.3 million in 1997 compared to $3.7 million in 1996. The increase in
noninterest income is a result of increases in Trust department income and
service fees to customers.
For the nine months of 1997, total noninterest income was $11.7 million
compared to $6.6 million in 1996. Without the effects of securities
transactions the year to date 1997 noninterest income would have been $12.5
million compared to $10.9 million in 1996. As with the third quarter balances,
the increase for the nine months of 1997 over 1996 is due to increases in
Trust Department income and service fees to customers.
Noninterest Expense
Total noninterest expense for the third quarter was $11.1 million in 1997 and
$10.3 million in 1996. The increase in noninterest expense is due to increased
cost for salaries and benefits of $340 thousand, occupancy expense of $560
thousand, offset by a reduction in professional fees of $380 thousand. The
increased salary expense and occupancy expense is the result of the new branch
locations opened in 1996 and 1997.
For the nine months of 1997, total noninterest expense was $33.9 million
compared to $31.4 million in 1996. As with the third quarter results, the nine
months of 1997 saw additional expenses in the areas of salaries and benefits,
occupancy and equipment expense as a result of new branch facilities.
Income Taxes
In the third quarter of 1997 and 1996, TrustCo recognized income tax expense
of $5.0 million and $4.6 million respectively. This resulted in an effective
tax rate of 37.1% in 1997 and 37.9% in 1996. For the nine months of 1997 total
tax expense was $14.2 million compared to $12.7 million in 1996.
- 14 -
TrustCo Bank Corp NY
Management's Discussion and Analysis -- continued
September 30, 1997
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 retained in the Company
(after the dividends on the common stock).
Total shareholders' equity at September 30, 1997 was $175.4 million, an
increase of $17.7 million from the September 30, 1996 balance of $157.7
million. The change in shareholders' equity between 1996 and 1997 reflects the
net income retained by TrustCo, and $9.8 million of additional unrealized
gains on the securities available for sale portfolio. Excluding the effect of
this market value adjustment on securities available for sale, total
shareholders' equity would have been $162.9 million at September 30,1997 and
$155.0 million at September 30, 1996.
TrustCo declared dividends of $0.72 per share during the first nine months of
1997, compared to $0.62 in 1996. These resulted in a dividend payout ratio of
70.3% in 1997 and 69.3% in 1996. The Company achieved the following capital
ratios as of September 30, 1997 and 1996:
September 30, Minimum Regulatory
1997 1996 Guidelines
---- ---- ----------
Tier 1 risk adjusted
capital 13.52% 12.96% 4%
Total risk adjusted
capital 14.81% 14.25% 8%
In addition, at September 30, 1997 and 1996, consolidated equity to asset
ratio (excluding the mark to market adjustment on securities available for
sale) was 6.99% and 6.91%, respectively.
- 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 the
Registrant and the Bank (adjusted for tax equivalency) for each of the reported periods.
Nonaccrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized appreciation, net of tax,
in the available for sale portfolio of $9.9 million in 1997 and $1.8 million in 1996.
The subtotals contained in the following table are the arithmetic totals of the items
contained in that category.
Third Quarter Third Quarter
1997 1996
------------------------ ------------------------- ---------------------------
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..................... $ 200,658 4,791 9.53% $ 219,552 $ 5,176 9.42% (385) (777) 392
Residential mortgage loans............ 860,082 17,708 8.24% 786,472 16,275 8.28% 1,433 1,985 (552)
Home equity lines of credit .......... 176,315 4,185 9.42% 185,251 4,272 9.17% (87) (637) 550
Installment loans..................... 29,324 940 12.72% 31,316 1,020 12.95% (80) (62) (18)
-------- ------ --------- ------ ----- ----- -----
Loans, net of unearned income......... 1,266,379 27,624 8.71% 1,222,591 26,743 8.74% 881 509 372
Securities available for sale:
U.S. Treasuries and agencies......... 344,801 6,705 7.78% 350,188 6,874 7.85% (169) (105) (64)
Mortgage-backed securities........... 168,422 3,141 7.46% 29,007 595 8.21% 2,546 2,925 (379)
States and political subdivisions.... 107,313 2,178 8.12% 81,980 1,632 7.96% 546 514 32
Other ............................... 32,443 477 5.87% 39,767 522 5.24% (45) (329) 284
-------- ------ --------- ------ ----- ----- -----
Total securities available for sale 652,979 12,501 7.66% 500,942 9,623 7.68% 2,878 3,005 (127)
Federal funds sold.................... 308,609 4,360 5.61% 439,380 5,898 5.34% (1,538) (3,314) 1,776
-------- ------ --------- ------ ------ ----- -----
Total Interest earning assets....... 2,227,967 44,485 7.97% 2,162,913 42,264 7.80% 2,221 200 2,021
Allowance for loan losses............. (53,201) ------ (51,140) ------ ------ ----- -----
Cash and non-interest earning assets.. 148,777 133,476
-------- ---------
Total assets........................ 2,323,543 $2,245,249
======== =========
Liabilities and shareholders' equity
Deposits:
Interest-bearing checking..........$ 234,323 910 1.54% 234,845 908 1.54% 2 2 --
Money market accounts.............. 58,574 433 2.93% 71,118 523 2.92% (90) (99) 9
Savings.............................. 662,540 5,734 3.43% 677,234 5,845 3.43% (111) (111) --
CD's over $100 thousand.............. 103,427 1,531 5.87% 84,773 1,216 5.71% 315 278 37
Other time deposits.................. 814,891 11,997 5.84% 759,171 10,887 5.71% 1,110 839 271
-------- ------ -------- ------ ----- ----- -----
Total time deposits................. 1,873,755 20,605 4.36% 1,827,141 19,379 4.22% 1,226 909 317
Short-term borrowings................. 118,125 1,429 4.80% 117,769 1,406 4.75% 23 5 18
-------- ------ -------- ------ ----- ----- -----
Total interest-bearing liabilities.. 1,991,880 22,034 4.39% 1,944,910 20,785 4.25% 1,249 914 335
Demand deposits....................... 123,585 ------ 116,275 ------ ----- ----- -----
Other liabilities..................... 38,237 30,791
Shareholders' equity.................. 169,841 153,273
-------- --------
Total liab. & shareholders' equity..$ 2,323,543 $2,245,249
======== ========
Net interest income................... 22,451 21,479 972 (714) 1,686
------ ------ ----- ----- -----
Net interest spread................... 3.58% 3.55%
Net interest margin (net interest
income to total interest earning
assets)............................ 4.05% 3.98%
Tax equivalent adjustment 839 674
------ ------
Net interest income per book....... 21,612 $ 20,805
====== ======
-16-
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 the
Registrant and the Bank (adjusted for tax equivalency) for each of the reported periods.
Nonaccrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized appreciation, net of tax,
in the available for sale portfolio of $6.5 million in 1997 and $5.2 million in 1996.
The subtotals contained in the following table are the arithmetic totals of the items
contained in that category.
Nine Months Nine Months
1997 1996
------------------------------ --------------------------
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans.....................$ 207,863 $ 14,709 9.44% $ 226,399 $15,900 9.37% (1,191) (1,390) 199
Residential mortgage loans........... 833,117 51,554 8.25% 779,004 48,563 8.31% 2,991 3,567 (576)
Home equity lines of credit ......... 179,979 12,551 9.32% 188,478 13,014 9.22% (463) (664) 201
Installment loans.................... 29,921 2,890 12.90% 31,834 3,150 13.22% (260) (186) (74)
--------- ------- --------- ------- ----- ----- -----
Loans, net of unearned income........ 1,250,880 81,704 8.71% 1,225,715 80,627 8.77% 1,077 1,327 (250)
Securities available for sale:
U.S. Treasuries and agencies........ 372,161 21,771 7.80% 418,007 24,153 7.70% (2,382) (2,858) 476
Mortgage-backed securities.......... 121,856 6,919 7.57% 53,227 3,029 7.59% 3,890 3,901 (11)
States and political subdivisions... 99,111 6,021 8.10% 74,698 4,383 7.82% 1,638 1,479 159
Other .............................. 33,543 1,416 5.63% 40,719 1,765 5.78% (349) (304) (45)
--------- ------- --------- ------- ----- ----- -----
Total securities available for sale 626,671 36,127 7.69% 586,651 33,330 7.58% 2,797 2,218 579
Federal funds sold................... 313,850 12,937 5.51% 321,781 12,911 5.36% 26 (435) 461
--------- ------- --------- ------- ----- ----- -----
Total Interest earning assets...... 2,191,401 130,768 7.96% 2,134,147 126,868 7.93% 3,900 3,110 790
Allowance for loan losses............ (52,940) ------- (50,956) ------- ----- ----- -----
Cash and non-interest earning assets. 150,638 131,098
--------- ---------
Total assets.......................$2,289,099 $2,214,289
========= =========
Liabilities and shareholders' equity
Deposits:
Interest-bearing checking.........$ 234,058 2,694 1.54% $ 234,160 $ 2,701 1.54% (7) (7) ---
Money market accounts............. 59,768 1,310 2.93% 70,354 1,535 2.91% (225) (238) 13
Savings............................. 661,217 16,985 3.43% 668,662 17,278 3.45% (293) (202) (91)
CD's over $100 thousand............. 98,524 4,268 5.79% 86,755 3,711 5.71% 557 506 51
Other time deposits................. 800,792 34,923 5.83% 767,916 32,991 5.74% 1,932 1,405 527
--------- ------- --------- ------- ----- ----- -----
Total time deposits................ 1,854,359 60,180 4.34% 1,827,847 58,216 4.25% 1,964 1,464 500
Short-term borrowings................ 115,887 4,119 4.75% 92,891 3,236 4.65% 883 813 70
--------- ------- --------- ------- ----- ----- -----
Total interest-bearing liabilities. 1,970,246 64,299 4.36% 1,920,738 61,452 4.27% 2,847 2,277 570
Demand deposits...................... 118,413 ------- 110,242 ------- ----- ----- -----
Other liabilities.................... 35,471 28,954
Shareholders' equity................. 164,969 154,355
--------- ---------
Total liab. & shareholders' equity.$2,289,099 $2,214,289
========= =========
Net interest income.................. 66,469 65,416 1,053 833 220
------- ------- ----- ----- -----
Net interest spread.................. 3.60% 3.66%
Net interest margin (net interest
income to total interest earning
assets)........................... 4.04% 4.08%
Tax equivalent adjustment 2,364 1,948
------- ------
Net interest income per book...... $ 64,105 $63,468
======= =======
-17-
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 10, 1997 By: /s/Robert A. McCormick
--------------------------------
Robert A. McCormick
President and
Chief Executive Officer
Date: November 10, 1997 By: /s/Robert T. Cushing
---------------------------------
Robert T. Cushing
Vice President and Chief
Financial Officer
- 18 -
Exhibits Index
- -----------------------------------------------------------------------------
Reg S-K
Exhibit No. Description Page No.
-------------- ------------------------------------------------ ----------
10(a) Amendment No. 1 to Restatement of Trustco 20
Bank Executive Officer Incentive Plan dated
October 21, 1997
- 19 -
AMENDMENT NO. 1 TO
RESTATEMENT OF
TRUSTCO BANK EXECUTIVE OFFICER INCENTIVE PLAN
WHEREAS, Trustco Bank, National Association (herein referred to as the
"Corporation") maintains the Trustco Bank Executive Officer Incentive Plan
(herein referred to as the "Plan"); and
WHEREAS, the Corporation desires to amend the Plan; NOW, THEREFORE, the
Plan is hereby amended effective October 21, 1997,
as follows:
I.
Section 1.3 of the Plan is deleted in its entirety and the following is
substituted in lieu thereof:
"Section 1.3. "Board of Directors" means the Board of Directors of
TrustCo Bank Corp NY."
II.
In Section 1.5, Section 1.11 and Section 1.18, the phrase "the
Corporation" is changed to "TrustCo Bank Corp NY" throughout.
III.
Section 3.1 of the Plan is hereby deleted in its entirety and the
following is substituted in lieu thereof:
"Section 3.1. A Participant will be entitled to an Incentive Award
for each Plan Year in which the Return on Equity of TrustCo Bank Corp NY
equals or exceeds 14%. The Incentive Award will be an amount equal to
his Base Salary multiplied by a bonus percentage based on the
- 20 -
Return on Equity of TrustCo Bank Corp NY as set forth in the following
table:
Return on Equity Bonus Percentage
---------------- ----------------
14% 40%
15% 50%
16% 60%
17% 75%
18% 90%
19% 105%
20% 125%
The bonus percentage will be further increased by 15% for each
percentage point the Return on Equity of TrustCo Bank Corp NY
exceeds 20%."
IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 1 to
be executed this 21 day of October, 1997.
TRUSTCO BANK, NATIONAL ASSOCIATION
By: /s/ John S. Morris
----------------------------------
Chairman
Title: Personnel Advisory Committee
- 21 -