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, 1999
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
320 STATE STREET, SCHENECTADY, NEW YORK 12305
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Common
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes.(x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class of Common Stock as of October 22, 1999
------------------------ ------------------------
$1 Par Value 26,778,942
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, 1999 and 1998
Consolidated Statements of Financial 2
Condition as of September 30, 1999 and
December 31, 1998
Consolidated Statements of Cash Flows 3 - 4
for the Nine Months Ended September 30,
1999 and 1998
Notes to Consolidated Interim Financial 5 - 7
Statements
Independent Auditors' Review Report 8
Item 2. Management's Discussion and Analysis 9 - 25
Item 3. Quantitative and Qualitative Disclosures 26
About Market Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities --None
Item 4. Submissions of Matters to Vote of Security
Holders - None
Item 5. Other Information - None
i
Item 6.Exhibts and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
Filing of Form 8-K on August 17, 1999, regarding press release
dated August 17, 1999 declaring a quarterly cash dividend of $0.27
per share, payable October 1, 1999, and the issuance of a two for
one stock split, to be distributed November 12, 1999.
Filing of Form 8-K on September 30, 1999, regarding a press release
dated September 30, 1999 announcing the retirement of Senior Vice
President Ralph A. Pidgeon.
Filing of Form 8-K on October 19, 1999, regarding two press
releases with year to date and third quarter results for the period
ending September 30, 1999.
ii
ITEM 1.
TRUSTCO BANK CORP NY
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
3 Months Ended 9 Months Ended
Sept 30 Sept 30
1999 1998 1999 1998
Interest income:
Interest and fees on loans $ 26,706 27,726 79,732 83,413
Interest on U. S. Treasuries and agencies 3,305 3,328 8,937 12,230
Interest on states and political
subdivisions 1,785 1,533 5,383 4,592
Interest on mortgage-backed securities 4,172 3,175 12,495 9,047
Other securities 2,191 1,973 6,478 4,252
Interest on federal funds sold 3,932 6,439 12,330 17,857
------------------------------------------------
Total interest income 42,091 44,174 125,355 131,391
------------------------------------------------
Interest expense:
Interest on deposits:
Interest-bearing checking 720 959 2,097 2,804
Savings 4,548 5,319 13,452 15,662
Money market deposit accounts 410 417 1,222 1,249
Time deposits 11,121 14,252 34,951 41,974
Interest on short-term borrowings 1,472 1,858 4,401 5,329
------------------------------------------------
Total interest expense 18,271 22,805 56,123 67,018
------------------------------------------------
Net interest income 23,820 21,369 69,232 64,373
Provision for loan losses 1,000 450 4,013 3,380
------------------------------------------------
Net interest income after provision
for loan losses 22,820 20,919 65,219 60,993
------------------------------------------------
Noninterest income:
Trust department income 2,007 1,736 5,918 5,435
Fees for other services to customers 2,242 2,323 6,491 6,529
Net gain/(loss) on securities transactions (1,153) 135 (2,230) 271
Other 802 521 3,389 2,381
------------------------------------------------
Total noninterest income 3,898 4,715 13,568 14,616
------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 6,255 5,760 18,571 17,219
Net occupancy expense 1,118 1,145 3,562 3,545
Equipment expense 1,101 1,186 4,208 3,780
FDIC insurance expense 58 61 182 184
Professional services 599 660 1,847 2,039
Other real estate expenses / (income) 29 352 (355) 714
Other 2,340 2,593 7,040 7,104
------------------------------------------------
Total noninterest expenses 11,500 11,757 35,055 34,585
------------------------------------------------
Income before taxes 15,218 13,877 43,732 41,024
Applicable income taxes 5,246 4,668 14,945 14,771
------------------------------------------------
Net income $ 9,972 9,209 28,787 26,253
================================================
Net income per Common Share:
- Basic $ 0.19 0.17 0.54 0.49
================================================
- Diluted $ 0.18 0.16 0.51 0.47
================================================
Per share data is adjusted for the effect of the 2 for 1 stock split declared August, 1999.
See accompanying notes to consolidated interim financial statements.
1
TRUSTCO BANK CORP
Consolidated Statements of Financial Condition
(dollars in thousands, except share data)
09/30/99 12/31/98
ASSETS: (unaudited)
Cash and due from banks $ 41,755 41,950
Federal funds sold 265,000 358,000
Other short-term funds 0 24,979
-------------------------------------
Total cash and cash equivalents 306,755 424,929
Securities available for sale:
U. S. Treasuries and agencies 193,761 167,825
States and political subdivisions 134,270 129,745
Mortgage-backed securities 224,052 249,489
Other 151,193 170,351
-------------------------------------
Total securities available for sale 703,276 717,410
-------------------------------------
Loans:
Commercial 193,213 188,115
Residential mortgage loans 982,770 961,499
Home equity line of credit 138,667 147,581
Installment loans 22,954 26,574
-------------------------------------
Total loans 1,337,604 1,323,769
Less:
Allowance for loan losses 55,719 54,375
Unearned income 1,026 1,066
-------------------------------------
Net loans 1,280,859 1,268,328
-------------------------------------
Bank premises and equipment 15,826 17,022
Real estate owned 2,271 5,174
Other assets 76,373 52,217
-------------------------------------
Total assets $ 2,385,360 2,485,080
=====================================
LIABILITIES:
Deposits:
Demand $ 159,088 154,358
Interest-bearing checking 266,952 266,027
Savings accounts 656,038 660,376
Money market deposit accounts 59,747 58,061
Certificates of deposit (in denominations of
$100,000 or more) 112,122 139,310
Time deposits 759,497 829,282
-------------------------------------
Total deposits 2,013,444 2,107,414
Short-term borrowings 151,774 147,924
Accrued expenses and other liabilities 48,036 43,900
------------------------------------
Total liabilities 2,213,254 2,299,238
====================================
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 and 50,000,000 shares authorized,
and 28,184,538 and 27,976,793 shares issued September 30, 1999
and December 31, 1998, respectively 28,185 27,977
Surplus 112,760 110,398
Undivided profits 47,132 40,533
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale 3,099 18,603
Treasury stock at cost - 1,410,844 and 1,184,525 shares at
September 30, 1999 and December 31, 1998, respectively (19,070) (11,669)
-----------------------------------
Total shareholders' equity 172,106 185,842
-----------------------------------
Total liabilities and shareholders' equity $ 2,385,360 2,485,080
===================================
See accompanying notes to consolidated interim financial
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, 1999 1998
-------- --------
Cash flows from operating activities:
Net income............................................... $ 28,787 26,253
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,779 1,520
Gain on sales of fixed assets.......................... (1,250) (589)
Provision for loan losses.............................. 4,013 3,380
Loss on sale of securities available for sale.......... 3,434 2
Gain on sale of securities available for sale.......... (1,204) (273)
Provision for deferred tax benefit..................... (717) (767)
(Increase)/decrease in taxes receivable................. 13,813 (2,084)
Increase in interest receivable........................ (1,610) (752)
Increase/(decrease) in interest payable................ (442) 40
(Increase)/decrease in other assets..................... (23,794) 4,041
Increase/(decrease) in accrued expenses................ 4,551 (955)
-------- --------
Total adjustments.................................... (1,427) 3,563
-------- --------
Net cash provided by operating activities................ 27,360 29,816
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale... 153,054 29,724
Purchase of securities available for sale.............. (299,736) (272,196)
Proceeds from maturities and calls
of securities available for sale...................... 132,369 192,423
Net increase in loans.................................. (19,188) (30,604)
Proceeds from dispositions of real estate owned........ 4,412 5,191
Proceeds from sales of fixed assets.................... 2,085 1,476
Capital expenditures................................... (1,418) (1,554)
-------- --------
Net cash used in investing activities................ (28,422) (75,540)
-------- --------
Cash flows from financing activities:
Net increase/(decrease) in deposits.................... (93,970) 79,945
Increase in short-term borrowing....................... 3,850 30,916
Proceeds from exercise of stock options................ 1,545 264
Proceeds from sale of treasury stock................... 5,615 4,196
Purchase of treasury stock............................. (11,991) (9,067)
Dividends paid......................................... (22,161) (19,261)
-------- --------
Net cash (used in)/provided by financing activities.. (117,112) 86,993
-------- --------
Net increase/(decrease) in cash and cash equivalents..... (118,174) 41,269
Cash and cash equivalents at beginning of period......... 424,929 437,740
-------- --------
Cash and cash equivalents at end of period.............. $ 306,755 479,009
======== ========
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, 1999 1998
-------- --------
Interest paid......................................... $ 56,565 66,978
Income taxes paid...................................... 1,849 17,622
Transfer of loans to real estate owned................. 2,644 3,407
Increase/(decrease) in dividends payable............... 27 (41)
Change in unrealized (gain)/loss on securities
available for sale-gross of deferred taxes............ 26,217 (6,994)
Change in deferred tax effect on unrealized gain/(loss)
on securities available for sale...................... (10,713) 2,857
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, 1999, the results of operations for the three months and nine months ended
September 30, 1999 and 1998, and the cash flows for the nine months ended
September 30, 1999 and 1998. 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 1998 Annual Report to Shareholders on Form 10-K.
2. Earnings Per Share
A reconciliation of the component parts of earnings per share for the three
month and nine month periods ended September 30, 1999 and 1998 follows:
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
-----------------------------------------------------------
For the quarter ended
September 30, 1999:
Basic EPS:
Net income available to $9,972 53,722 $0.19
common shareholders..............
Effect of Dilutive Securities:
Stock options.................... ------ 2,230 -----
-----------------------------------------------------------
Diluted EPS $9,972 55,952 $0.18
===========================================================
For nine months ended
September 30, 1999:
Basic EPS:
Net income available to
common shareholders.............. $28,787 53,747 $0.54
Effect of Dilutive Securities:
Stock options.................... ------- 2,207 -----
------------------------------------------------------------
Diluted EPS $28,787 55,954 $0.51
============================================================
Share and per share data have been adjusted for the 2 for 1 stock split declared in August 1999.
5
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
---------------------------------------------------------------
For the quarter ended
September 30, 1998:
Basic EPS:
Net income available to
common shareholders.............. $9,209 53,548 $0.17
Effect of Dilutive Securities:
Stock options.................... ------ 2,278 -----
--------------------------------------------------------------
Diluted EPS $9,209 55,826 $0.16
==============================================================
For nine months ended
September 30, 1998:
Basic EPS:
Net income available to
common shareholders.............. $26,253 53,639 $0.49
Effect of Dilutive Securities:
Stock options.................... ------ 2,228 -----
--------------------------------------------------------------
Diluted EPS $26,253 55,867 $0.47
==============================================================
Share and per share data have been adjusted for the 2 for 1 stock split declared in August 1999.
3. Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," (Statement 130).
This Statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes the reported net income
of a company adjusted for items that are currently accounted for as direct
entries to equity, such as the mark to market adjustment on securities available
for sale, foreign currency items and minimum pension liability adjustments. At
the Company, comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealized gains or losses on
securities available for sale for the period. Accumulated other comprehensive
income represents the net unrealized gains or losses on securities available for
sale as of the balance sheet dates.
6
Comprehensive income for the three month periods ended September 30, 1999 and
1998 was $5,211,000 and $8,946,000 respectively, and $13,283,000 and $30,390,000
for the nine month periods ended September 30, 1999 and 1998, respectively. The
following summarizes the components of other comprehensive income:
(dollars in thousands)
Unrealized gains on securities: Three months ended September 30
1999 1998
--------------------------------------
Unrealized holding gains/(losses) arising during period, net of
tax (pre-tax loss of $9,207 for 1999 and pre-tax loss of $311 for
1998) ($5,443) (183)
Reclassification adjustment for net gain/(loss) realized in net
income during the period, net of tax (pre-tax loss of $1,153 for
1999 and pre-tax gain of $135 for 1998) (682) 80
--------------------------------------
Other comprehensive income/(loss) ($4,761) (263)
======================================
(dollars in thousands)
Unrealized gains on securities: Nine months September 30
1999 1998
Unrealized holding gains/(losses) arising during period, net of
tax (pre-tax loss of $28,447 for 1999 and pre-tax gain of $7,265
for 1998) ($16,823) 4,297
Reclassification adjustment for net gain/(loss) realized in net
income during period, net of tax (pre-tax loss of $2,230 for 1999
and pre-tax gain of $271 for 1998) (1,319) 160
--------------------------------------
Other comprehensive income/(loss) ($15,504) $4,137
======================================
7
INDEPENDENT AUDITORS' REVIEW 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, 1999, and the
related consolidated statements of income for the three month and nine month
periods ended September 30, 1999 and 1998, and the consolidated statements of
cash flows for the nine month periods ended September 30, 1999 and 1998. 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, 1998 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 22,
1999, 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, 1998 is fairly
stated, in all material respects, in relation to the consolidated statement of
financial condition from which it has been derived.
/s/KPMG LLP
______________________________
KPMG LLP
Albany, New York
October 8, 1999
8
Item 2.
TrustCo Bank Corp NY
Management's Discussion and Analysis
September 30, 1999
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, 1999, with
comparisons to 1998 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 1998
Annual Report to Shareholders should be read in conjunction with this review.
Amounts in prior period consolidated interim financial statements are
reclassified whenever necessary to conform to the current period's presentation.
Per share results have been adjusted for the 2 for 1 stock split declared in
August 1999.
Forward-looking Statements
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which are
not historical or current facts, are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, and are subject to certain risks and uncertainties that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. TrustCo wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases have affected
and in the future could affect TrustCo's actual results, and could cause
TrustCo's actual financial performance to differ materially from that expressed
in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3)
competition, (4) certain vendors of critical systems or services failing to
comply with Year 2000 programming issues, (5) changes in the regulatory
environment, and (6) changes in general business and economic trends. The
foregoing list should not be construed as exhaustive, and the Company disclaims
any obligation to subsequently revise any forward-looking statements to reflect
events or circumstances after the date of such statements, or to reflect the
occurrence of anticipated or unanticipated events.
Following this discussion is the table "Distribution of Assets, Liabilities and
Shareholders' Equity: Interest Rates and Interest Differential" which gives a
detailed breakdown of TrustCo's average interest earning assets and interest
bearing liabilities for the three months and nine months ended September 30,
1999 and 1998.
Overview TrustCo recorded net income of $10.0 million, or $0.18 of diluted
earnings per share for the three months ended September 30, 1999, as compared to
net income of $9.2 million or $0.16 of diluted earnings per share in the same
period in 1998. For the nine month period
9
ended September 30, 1999, TrustCo recorded net income of $28.8 million, or $0.51
of diluted earnings per share, as compared to $26.3 million, or $0.47 of diluted
earnings per share for the comparable period in 1998.
The primary factors accounting for the year to date increases are:
- Increase in average total interest earning assets of $18.1 million
between September 30, 1998 and September 30, 1999,
- A 27 basis points increase in the net interest margin from 3.82%
for the first nine months of 1998 to 4.09% for 1999, and
- An increase in noninterest income (excluding securities
transactions) by approximately $1.5 million to $15.8 million at
September 30, 1999.
These increases were partially offset by an increase of approximately $500
thousand in noninterest expense.
Asset/Liability Management
The Company strives to generate superior earnings capabilities through a mix of
core deposits, funding a prudent mix of earning assets. This is, in its most
fundamental form, the essence of asset/liability management. Additionally,
TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of
net interest income to changes in interest rates to an acceptable level while
enhancing profitability both on a short-term and long- term basis.
Earning Assets
Total average interest earning assets decreased from $2.38 billion for the third
quarter of 1998 to $2.34 billion in 1999 with an average yield of 7.35% in 1999
and 7.56% in 1998. Income on earning assets decreased by $1.9 million during
this same time-period from $45.0 million in 1998 to $43.1 million in 1999. The
decrease in interest income on earning assets was attributable to the reduction
in yield on these assets and the reduction in balances outstanding.
For the nine month period ended September 30, 1999, the average balance of
interest earning assets was $2.35 billion, an increase of $18.1 million from the
balance for the comparable period in 1998 of $2.33 billion. The average yield on
interest earning assets was 7.66% for 1998, compared to 7.28% in 1999. The
increase in the average balance of earning assets did not completely offset the
reduction in the yield earned on these assets, thereby resulting in a reduction
in interest income of $5.7 million to $128.3 million for the nine months of
1999, compared to $134.0 million for the nine months of 1998.
10
Loans
The average balance of loans for the third quarter was $1.33 billion in 1999 and
$1.32 billion in 1998. The yield on loans decreased from 8.43% in 1998 to 8.02%
in 1999. The combination of the higher average balances offset by the lower
rates resulted in a decrease in the interest income on loans by $1.0 million.
For the nine month period ended September 30, 1999, the average balance in the
loan portfolio was $1.33 billion compared to $1.31 billion for the comparable
period in 1998. The average yield decreased from 8.53% in 1998 to 8.04% in 1999.
The increase in the average balance of loans outstanding offset slightly the
impact of the reduction in the yield resulting in total interest income of $79.9
million in 1999 compared to $83.7 million in 1998.
The reduction in the yield in the loan portfolio was the result of dramatic
reductions in the rates for new and refinanced loans. Since June 1998, market
interest rates on real estate loan products have decreased, thereby stimulating
new loan demand and providing an opportunity for borrowers to refinance their
existing loan balances at lower rates. This situation resulted in the
residential mortgage loan portfolio growing on average by $42.5 million for the
nine month period ended September 30, 1999, compared to September 30, 1998. This
growth in the residential mortgage loan portfolio caused the yield to decrease
from 8.08% for the nine month period ended September 30, 1998 to 7.80% for the
comparable period in 1999. The home equity credit line portfolio and the
commercial real estate portfolio are also significantly affected by interest
rates in the marketplace. Both products have rates tied to various indexes such
as prime rate. As the index changes, so will the rates earned on these assets.
The commercial loan yield decreased from 9.48% for the nine month period ended
September 30, 1998 to 8.86% for the nine month period ended September 30, 1999.
The home equity credit line portfolio experienced a similar reduction in rates
as the average yield decreased from 9.34% in 1998 to 7.83% in 1999. The home
equity credit line rate decline was also the result of reductions made in the
pricing process for this product in order to make it more competitive with home
equity credit lines offered at other financial institutions. Though these
changes in pricing were made for the home equity credit line product, the
average balance of these loans decreased from $162.0 million for the nine month
period ended September 30, 1998 to $142.4 million for the comparable period in
1999.
Securities Available for Sale
During the third quarter of 1999, the average balance of securities available
for sale was $704.8 million with a yield of 7.02%, compared to $601.6 million
for the third quarter of 1998 with a yield of 7.17%. The combination of the
increase in average balance offset by the reduction in the yields caused an
increase in interest income on securities available for sale of $1.6 million
between the third quarter of 1999 and 1998.
The nine month results reflect the same principal trends noted for the third
quarter. The total average balance of securities available for sale during the
nine months of 1999
11
was $688.5 million with an average yield of 6.98% compared to an average balance
for 1998 of $595.7 million with a yield of 7.26%.
Reflected in both the third quarter and nine month results are reductions in the
average balances invested in securities issued by the U.S. Government or its
agencies that are "callable" by the agency. As interest rates in the market have
decreased, these securities were called by the agency and consequently resulted
in TrustCo having additional funds in overnight investments. Through the third
quarter there has also been an increase in the amount invested in
mortgage-backed securities. These are pass through securities that are secured
by the underlying mortgage loans and government guarantees. With the types of
mortgage-backed securities that TrustCo purchases, there is little credit risk
in the portfolio. Rather, the risk with respect to these securities rests with
the issue of interest rates. As interest rates in the mortgage markets decrease,
the underlying loans will prepay early or refinance in their entirety.
Generally, mortgage-backed securities provide cash flows over a longer time
period to final maturity, than do callable securities.
Also during the later part of 1998 and into early 1999, TrustCo has invested in
asset-backed securities. The underlying collateral for these bonds are home
equity loans and home equity lines of credit. Virtually all of the bonds are
insured and have an average life of less than three years. All of the bonds are
"AAA" rated by Standard and Poors or Moody's. At September 30, 1999, the Company
had invested $111.5 million in asset-backed securities.
Federal Funds Sold
During the third quarter of 1999, the average balance of federal funds sold was
$303.8 million with a yield of 5.13%, compared to the average balance for the
three month period ended September 30, 1998 of $458.6 million with an average
yield of 5.57%. The $154.8 million reduction in the average balance, combined
with the 44 basis points decrease in the average yield, resulted in total
interest income on federal funds sold of $3.9 million for 1999 compared to $6.4
million for 1998.
During the nine month period ended September 30, 1999, the average balance of
federal funds was $337.2 million with a yield of 4.89% compared to an average
balance of $429.3 million in 1998 with an average yield of 5.56%.
The federal funds portfolio is utilized to generate additional interest income
and liquidity as funds are waiting to be deployed into the loan and securities
portfolios. The reduction in the average balance for the three month and nine
month periods of 1999 compared to 1998 are the result of increases in the loan
and securities portfolios during those time periods, plus reductions in deposits
funded through the liquidation of federal funds sold.
The reduction in the yield on federal funds sold between 1998 and 1999 is the
result of changes made by the Federal Reserve Bank for the target rate on
overnight federal
12
funds investments. During the later part of 1998 the Federal Reserve Bank
reduced its target rate by 75 basis points to 4.75%. In 1999 the Federal Reserve
Bank increased the target rate to 5.25%. The full impact of that increase will
be reflected in the fourth quarter results.
Funding Opportunities
TrustCo utilizes various funding sources to support its earning asset portfolio.
The vast majority of the Company's funding comes from traditional deposit
vehicles such as savings, interest bearing checking and time deposit accounts.
Also, TrustCo developed a Short-Term Investment Account, which was introduced in
1995 exclusively for customers of the Trust Department.
During the quarter, total interest bearing liabilities were $2.0 billion for
1999 and $2.1 billion for 1998. The rate paid on total interest bearing
liabilities was 4.30% for the third quarter of 1998, 73 basis points greater
than the 3.57% rate paid for 1999. Total interest expense for the third quarter
decreased $4.5 million to $18.3 million for 1999 compared to $22.8 million for
1998.
Similar changes in interest bearing liabilities were noted for the nine month
period as was discussed for the quarter. Total interest bearing liabilities were
$2.1 billion for the nine month periods ended September 30, 1999 and 1998. The
rate paid on these balances decreased from 4.32% for 1998 to 3.65% for 1999.
During 1998 and continuing into 1999, TrustCo has reduced the rate paid on all
funding sources. These reductions in interest rates were the result of a general
fall in interest rates in the market place between those two dates. The Federal
Reserve Bank reduced the target federal funds rate during most of this time and
only recently began increasing the target funds rate. From that reduction there
were also declines in bond yields, mortgage interest rates and deposit rates.
TrustCo has actively managed the pricing of deposit products in relation to
investment opportunities and marketing objectives. Interest rates on all deposit
types have been aggressively reduced, while at the same time the average
balances have decreased from the period one year ago.
Net Interest Income
Taxable equivalent net interest income increased to $24.8 million for the third
quarter of 1999. The net interest spread also increased 52 basis points between
1998 and 1999 and the net interest margin increased by 50 basis points.
Similar increases were noted in taxable equivalent net interest income, net
interest spread and net interest margin for the nine month period ended
September 30, 1999, compared to the same period in 1998. Net interest income for
the first nine months of 1999 was $72.2 million, an increase of $5.2 million
over the $66.9 million for the first nine months of 1998. Net interest spread
increased 29 basis points to 3.63% and net interest margin increased 27 basis
points to 4.09% for the nine month period ended September 30, 1999, compared to
the nine month period ended September 30, 1998.
13
Nonperforming Assets
Nonperforming assets include nonperforming loans which are those loans in a
nonaccrual status, loans that have been restructured, and loans past due three
payments or more and still accruing interest. Also included in the total of
nonperforming assets are foreclosed real estate properties, which are
categorized as real estate owned.
Impaired loans are considered to be those commercial and commercial real estate
loans in a nonaccrual status and loans restructured since January 1, 1995, when
the accounting standards required the identification, measurement and reporting
of impaired loans. The following will describe the nonperforming assets of
TrustCo as of September 30, 1999.
Nonperforming loans: Total nonperforming loans were $9.9 million at September
30, 1999, a decrease from the $12.4 million of nonperforming loans at December
31, 1998 and the $10.4 million at September 30, 1998. Nonaccrual loans were $4.7
million at September 30, 1999 down from the $7.1 million at December 31, 1998
and down from the $6.2 million at September 30, 1998. Restructured loans were
$4.2 million at September 30, 1999 compared to $3.8 million at December 31, 1998
and $3.6 million at September 30, 1998.
Of the $9.9 million of nonperforming loans at September 30, 1999, all but
approximately $400 thousand are residential real estate or retail consumer
loans. In prior years the vast majority of nonperforming loans were concentrated
in the commercial and commercial real estate portfolios. There has been a
dramatic shifting of nonperforming loans to the residential real estate and
retail consumer loan portfolio for several factors, including:
- The overall emphasis within TrustCo for residential real estate
originations,
- The relatively weak economic environment in the upstate New
York territory, and
- The reduction in real estate values in TrustCo's market area
that has occurred since the middle of the 1990's, thereby
causing a reduction in the collateral that supports the real
estate loans.
Consumer defaults and bankruptcies have increased dramatically over the last
several years and this has lead to an increase in defaults on loans. TrustCo
strives to identify borrowers that are experiencing financial difficulties and
to work aggressively with them to minimize losses or exposures.
Total impaired loans at September 30, 1999 of $4.8 million, consisted of
restructured retail loans. During the first nine months of 1999, there have been
$360 thousand of commercial loan charge offs, $445 thousand of consumer loan
charge offs and $5.4 million of mortgage loan charge offs as compared with $953
thousand of commercial loan charge offs, $736 thousand of consumer loan charge
offs and $3.1 million of
14
mortgage loan charge offs in the first nine months of 1998. Recoveries during
the first nine month periods have been $3.5 million in 1999 and $2.3 million in
1998.
Real estate owned: Total real estate owned of $2.3 million at September 30, 1999
decreased by $2.9 million since year-end 1998. This decrease was due to the sale
of two commercial real estate properties and various residential properties
during 1999.
Allowance for loan losses: The balance of the allowance for loan losses is
maintained at a level that is, in management's judgment, representative of the
amount of the risk inherent in the loan portfolio.
At September 30, 1999, the allowance for loan losses was $55.7 million, which
represents a slight increase from the $54.4 million in the allowance at December
31, 1998. The allowance represents 4.17% of the loan portfolio as of September
30, 1999 compared to 4.11% at December 31, 1998. For the nine month periods, the
provision charged to expense was $4.0 million for 1999 and $3.4 million for
1998.
In deciding on the adequacy of the allowance for loan losses, management reviews
the current nonperforming loan portfolio as well as loans that are past due and
not yet categorized as nonperforming for reporting purposes. Also, there are a
number of other factors that are taken into consideration, including:
- The magnitude and nature of the recent loan charge offs and
the movement of charge offs to the residential real estate
loan portfolio,
- The growth in the loan portfolio and the implication that has
in relation to the economic climate in the bank's business
territory,
- Changes in underwriting standards in the competitive
environment in which TrustCo operates,
- Significant growth in the level of losses associated
with bankruptcies and the time period needed to foreclose,
secure and dispose of collateral, and
- The relatively weak economic environment in the upstate New
York territory combined with declining real estate prices.
Consumer bankruptcies and defaults in general have risen significantly during
the 1990's. This trend appears to be continuing as a result of economic strife
and the relative ease of access by consumers to additional credit. Job growth in
the upstate New York area has been modest to declining and there continues to be
a shifting of higher paying jobs in manufacturing and government to lower paying
service jobs.
In light of these trends, management believes the allowance for loan losses is
reasonable in relation to the risk that is present in its current loan
portfolio.
15
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 three months ended September 30, 1999 was $3.9
million, a decrease of approximately $800 thousand from the comparable period in
1998. During the 1999 period, the Company recorded net securities losses $1.2
million compared to $135 thousand of net gains for the comparable period in
1998. Excluding these securities transactions, noninterest income increased from
$4.6 million in the third quarter of 1998 to $5.1 million in 1999. The increase
is the result of additional Trust fee income and other miscellaneous items.
Similar results were also recognized for the nine months of 1999 compared to
1998. Total noninterest income was $13.6 million for 1999 compared to $14.6
million for 1998. Excluding net securities transactions, the balances for 1999
and 1998 would have been $15.8 million and $14.3 million respectively. Most of
the year to date increase resulted from the gain on sales of bank premises and
equipment and Trust fee income.
Noninterest Expenses
Total noninterest expense for the third quarter of 1999 was $11.5 million down
slightly from $11.8 million in the third quarter of 1998. For the nine months
ended September 30, 1999 and 1998, total noninterest expense was $35.1 million
and $34.6 million respectively.
Income Taxes
In the third quarter of 1999 and 1998, TrustCo recognized income tax expense of
$5.2 million and $4.7 million respectively. This resulted in an effective tax
rate of 34.5% for 1999 and 33.6% for 1998. For the nine months of 1999, total
income tax expense was $14.9 million compared to $14.8 million for 1998.
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).
16
Total shareholders' equity at September 30, 1999 was $172.1 million, a decrease
of $13.7 million from the year-end of 1998 balance of $185.8 million. The change
in the shareholders' equity between year-end 1998 and September 30, 1999
reflects the net income retained by TrustCo offset by a $15.5 million decrease
in the net unrealized gain, net of tax, on securities available for sale, and a
$7.4 million increase in the amount of Treasury stock.
TrustCo declared dividends of $0.413 per share during the first nine months of
1999 compared to $0.359 in 1998. These resulted in a dividend payout ratio of
77.08% in 1999 and 73.21% in 1998. The Company achieved the following capital
ratios as of September 30, 1999 and 1998:
September 30, Minimum Regulatory
1999 1998 Guidelines
-----------------------------------------
Tier 1 risk adjusted
capital 13.27% 12.49 4.00
Total risk adjusted
capital 14.56 13.77 8.00
In addition, at September 30, 1999 and 1998, the consolidated equity to total
assets ratio (excluding the mark to market effect of securities available for
sale) was 7.09% and 6.70%, respectively.
17
Year 2000 Update
General:
Management believes that TrustCo's company-wide Year 2000 project is proceeding
on schedule. The Year 2000 project is addressing the issue of computer software,
hardware, and embedded computer chips being unable to distinguish between the
years 1900 and 2000. TrustCo has completed the installation of all upgrades and
program changes required by the software vendors to make all mission critical
systems Year 2000 compliant. Testing has also been successfully completed with
respect to these systems to determine that they are functional using Year 2000
dates. The schedule for the remainder of 1999 is to continue testing the
systems, and to install any new program changes identified by the software
vendors. TrustCo will also continue testing with third party exchange partners
and vendors for the remainder of 1999.
TrustCo operates its principal financial accounting and record keeping systems
using software purchased from Alltel. Beginning in 1995, TrustCo started a
project to upgrade this software to the most current release available and to
work with Alltel to make the appropriate changes in order to be ready to process
Year 2000 transactions. A timetable was established for these upgrades to occur
which would culminate in the installation of a final set of upgrades that would
be Year 2000 ready. TrustCo has installed every upgrade and made all other
changes required by Alltel to ensure that all programs are Year 2000 ready.
In addition to the Alltel programs, there are a limited number of mainframe
application programs that were purchased from Kirchman Corporation. TrustCo
worked directly with the technical support staff at Kirchman to evaluate these
applications for any program changes required to accommodate Year 2000
processing requirements. In light of the program structure and the fact that
these programs already utilize the full century date in their processing, it is
not anticipated that there will be any difficulties with these programs
accepting Year 2000 data.
Throughout the organization, TrustCo utilizes other computer systems to process
various activities. Some of the functionality provided by these systems is of a
routine nature and is not critical to the operations of TrustCo. The critical
non-mainframe applications are the ATM application, which runs on an IBM AS400
system; Trust Accounting, which runs on an Alpha system from Digital Equipment
Corporation (DEC); and Payroll, which is a server-based application.
The Year 2000 project also addresses the increasing speculation regarding
short-and long-term unavailability of certain consumer goods, which may prompt
people to accumulate or hoard cash in quantities sufficient to meet their
personal
18
needs for a period of time. The Year 2000 project has provisions dealing with
the need for additional cash in the branches later in 1999 and into the year
2000. Arrangements have been made to obtain and transport additional cash to the
branches should the demand increase during those time periods.
Mainframe Operations:
Alltel Software: The vast majority of all transactions processed by TrustCo are
performed using Alltel software. Beginning in 1995, the Company inventoried all
of the applications that are processed on the mainframe and identified the
program release that TrustCo needed in order to be Year 2000 ready. A schedule
was developed and outside consulting resources were engaged to assist the
in-house programming staff to have all applications operating Year 2000 ready
programs upgraded by mid-1998. Completion of that schedule has been accomplished
and all Alltel Year 2000 ready programs have been installed.
Kirchman programs: TrustCo utilizes three programs purchased from Kirchman that
operate on the mainframe computer. The TrustCo in-house programming staff and
outside consultants have reviewed these programs and have concluded that the
programs are currently Year 2000 ready.
IBM operating system: The IBM operating system also required an upgrade to a new
version to ensure that it would be Year 2000 ready. This software has been
obtained and installed.
ATM application: A second system, identical to the system in place being used
for daily production, has been installed for ATM Year 2000 testing. The system
software for the platform has been upgraded to IBM's Year 2000 release. The
application software for both TrustCo and non-TrustCo ATM transactions has been
installed and placed into service.
Trust Accounting: A second system, identical to the system being used for daily
production, has been installed for Trust Department Year 2000 testing. The
operating system software has been upgraded to DEC's Year 2000 release. The
application software has been upgraded to the vendor's Year 2000 release.
Non-information Technology: In addition to computer systems utilized for
information technology, TrustCo is also dependent upon certain computerized
operations for such things as electrical services, heating and communications.
As part of the Year 2000 project, TrustCo has taken steps to evaluate the
magnitude of the computer dependency of these systems and the potential
disruption of services should these systems fail. Third-party vendors that
support these systems have been contacted and are being monitored by TrustCo in
relation to their Year 2000 implementation plan. Significant dependencies exist
19
with respect to utilities such as the electric companies. TrustCo has obtained
the Year 2000 project plans for these utilities and is monitoring the continued
compliance with their plans. The TrustCo contingency plan also provides for
generator back up power at key sites to allow for minimum functionality should
the primary electric providers be inoperative in Year 2000.
Personal Computers:
TrustCo reviewed all programs and departmental functions that utilize personal
computers. This inventory was then prioritized to identify critical programs
that needed to be Year 2000 ready. All of the critical programs have been
rewritten or new software has been installed so that they are year 2000 ready.
Testing:
To ensure that each of the systems that TrustCo operates will be Year 2000
ready, a testing plan has been developed. To assist in testing, TrustCo has
purchased redundant equipment for all of the hardware. This will facilitate
extended hours for testing and will ensure that none of the testing will in any
way affect production programs. As part of the test plan, TrustCo has identified
several dates that need to be tested. These include year-end 1999 and 2000 and
other critical dates during 1999 and 2000. Also various software and hardware
vendors have identified critical test dates for their systems which have been
incorporated into the overall test plan.
Detailed test scripts have been developed to determine that once the computer
clocks have been rolled forward to the appropriate test dates, specific
transactions and processes are performed to validate operational integrity. Data
aging software has also been obtained that will assist in identifying all of the
affected data fields and change them to the future date as required for the
test.
The test plan requires each application to be tested initially on a stand-alone
basis to ensure that it is operational in current date mode and will support
production. Once that test is completed, the plan calls for each application to
be tested in future date mode on a stand-alone basis. The test plan is designed
to help identify and isolate problems, if any exist, in future date mode
testing. The individual application testing will then lead to entity-wide
testing in future date mode to ensure that all of the applications function
properly in the future date environment.
TrustCo has substantially completed testing of the mission-critical systems in
future date mode. Test data and test scripts were completed for selected dates
and all output and processing was completed. Further testing will continue in
1999 as TrustCo interfaces with third-party vendors and service providers.
20
The detailed test plan covers all aspects of TrustCo's operations on the
mainframe, as well as all other mission-critical platforms.
Customer Evaluations:
TrustCo has completed a review of its significant customer relationships and
their dependency on computerized systems. In addition, significant new customer
relationships will also be subject to this evaluation. TrustCo has established
an ongoing assessment as part of the credit granting and review process.
Vendor Monitoring:
In addition to the main application software vendors, TrustCo has numerous
interfaces and data exchanges with third parties and vendors. Each of the
critical interfaces and vendors has been contacted to determine that their Year
2000 plans are adequate and will meet the timetables required by TrustCo. When
such plans are not provided or do not adequately address Year 2000 concerns,
alternate vendors or data exchange methods have been identified.
These interfaces and data exchanges with third parties and vendors occur
utilizing numerous types of programs and computer systems. Their Year 2000
projects require them to be compliant in accordance with timetables that are
acceptable to TrustCo and in accordance with guidelines established by bank
regulators. Due to the number of such interfaces and data exchanges with third
parties and vendors, there is a risk that some may not meet their schedules.
TrustCo is monitoring these activities and will take appropriate action should
the need arise.
Contingency Planning:
All of the mainframe application software is currently operational on software
that TrustCo's vendors have identified as being Year 2000 ready. Likewise, all
of the critical PC programs have been updated or rewritten to be Year 2000
ready. Substantially all future date testing has been completed and test results
provided assurance to management that the system will be functional in Year
2000. As problems are identified, the affected programming code is analyzed and
rewritten or replaced if needed.
The contingency plan that has been developed was designed to ensure that all the
testing and remediation efforts are completed in order to provide adequate time
for final corrections to software prior to Year 2000. Plans are also being
developed to identify and plan for unanticipated disruption of services after
Year 2000. These plans include timetables for moving operations to disaster
recovery sites, the availability of additional programming staff during the
critical time periods and back-up for program and data files. Initial plans have
been developed and will be updated continuously.
21
Cost:
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's consolidated financial
statements. Most of the costs associated with this project are for programming
services paid to third-party consultants. Internal costs have not been captured,
since they are relatively fixed costs and are a reallocation of existing
resources to this project. Costs paid to third-party vendors during the Year
2000 project were for the following services:
- Installation of upgrades to software in order to utilize the most
recent version released by the vendor,
- Applying the Year 2000 code,
- Applying custom code that is utilized by TrustCo in its operations,
and,
- Providing production support to the Company as these upgrades are
being installed.
The cost of applying the Year 2000 remediation code to the upgraded programs is
not separately determinable from the other services that the third-party
consultants have been providing. The professional service cost for the services
noted above is estimated to be approximately $2 million for the Year 2000
project. Through September 30, 1999, approximately 90% of these costs have been
expensed.
Risk:
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party exchange partners and
vendors, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Year 2000 project
is expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material third-party data exchange partners and vendors. The
Company believes that, with the implementation of the modifications of all the
software and the monitoring of third-party data exchange partners and vendors,
the possibility of significant interruptions of normal operations should be
reduced.
The most likely worst case scenario is that certain interfaces and data
exchanges with third parties and vendors may not be fully functional at or after
the century
22
date change. Because it is impossible to predict the nature of the failure, the
length of time that it takes to correct, and the extent of the failure, it is
not possible to reasonably estimate the impact on TrustCo. Management's plan for
testing with third parties and vendors will be completed during 1999. This worst
case scenario could increase the overall cost of the Year 2000 project; however,
management believes that this scenario, though possible, has only a minor
likelihood of occurring.
Readers are cautioned that forward-looking statements contained in the Year 2000
update should be read in conjunction with the Company's disclosures under the
heading "Forward-Looking Statements" dealing with cautionary statements for the
purpose of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
23
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 $4.1 million in 1999 and $18.5 million in 1998.
The subtotals contained in the following table are the arithmetic totals of the items
contained in that category.
Third Quarter Third Quarter
1999 1998
___________________________ ___________________________ ____________________________
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans.....................$ 191,311 $ 4,207 8.78%$ 190,718 $ 4,468 9.35% (261) 92 (353)
Residential mortgage loans............ 979,395 18,983 7.75% 945,168 18,944 8.02% 39 2,636 (2,597)
Home equity lines of credit .......... 139,132 2,819 8.04% 154,610 3,561 9.14% (742) (337) (405)
Installment loans..................... 22,063 746 13.41% 26,022 816 12.44% (70) (381) 311
--------- ------- --------- ------- ------- ----- -----
Loans, net of unearned income.........1,331,901 26,755 8.02% 1,316,518 27,789 8.43% (1,034) 2,010 (3,044)
Securities available for sale:
U.S. Treasuries and agencies......... 185,205 3,315 7.16% 180,008 3,341 7.42% (26) 413 (439)
Mortgage-backed securities........... 245,678 4,172 6.79% 181,620 3,175 6.99% 997 1,594 (597)
States and political subdivisions.... 132,997 2,629 7.91% 111,175 2,248 8.09% 381 704 (323)
Other ............................... 140,929 2,256 6.40% 128,783 2,015 6.25% 241 194 47
--------- ------- --------- ------- ------- ----- -----
Total securities available for sale 704,809 12,372 7.02% 601,586 10,779 7.17% 1,593 2,905 (1,312)
Federal funds sold.................... 303,783 3,932 5.13% 458,598 6,439 5.57% (2,507) (2,035) (472)
Other short-term funds................ ----- ---- --- ----- ---- ---- --- --- ---
--------- ------- --------- ------- ------- ----- -----
Total Interest earning assets.......2,340,493 43,059 7.35% 2,376,702 45,007 7.56% (1,948) 2,880 (4,828)
Allowance for loan losses............. (56,444) ------- (55,190) ------- ------- ----- -----
Cash and non-interest earning assets.. 123,400 146,257
--------- ---------
Total assets.......................$2,407,449 $ 2,467,769
========= =========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking...........$ 268,140 720 1.07%$ 246,610 $ 959 1.54% (239) 465 (704)
Money market accounts................ 59,573 410 2.73% 56,549 417 2.93% (7) 96 (103)
Savings.............................. 667,762 4,548 2.70% 663,959 5,319 3.18% (771) 205 (976)
Time deposits........................ 890,775 11,121 4.95% 982,915 14,252 5.75% (3,131) (1,261) (1,870)
--------- ------- --------- ------- ------- ----- -----
Total time deposits.................1,886,250 16,799 3.53% 1,950,033 20,947 4.26% (4,148) (495) (3,653)
Short-term borrowings................. 145,871 1,472 4.00% 153,862 1,858 4.79% (386) (93) (293)
--------- ------- --------- ------- ------- ----- -----
Total interest bearing liabilities..2,032,121 18,271 3.57% 2,103,895 22,805 4.30% (4,534) (588) (3,946)
Demand deposits....................... 157,956 ------- 141,884 ------- ------- ----- -----
Other liabilities..................... 42,887 39,331
Shareholders' equity.................. 174,485 182,659
--------- ---------
Total liab. & shareholders' equity.$2,407,449 $ 2,467,769
========= =========
Net interest income................... 24,788 22,202 2,586 3,468 (882)
------- ------- ------- ----- -----
Net interest spread................... 3.78% 3.26%
Net interest margin (net interest
income to total interest earning
assets)............................ 4.25% 3.75%
Tax equivalent adjustment 968 833
------- -------
Net interest income per book....... $ 23,820 $ 21,369
======= =======
24
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 $12.4 million in 1999 and $16.1 million in 1998.
The subtotals contained in the following table are the arithmetic totals of the items
contained in that category.
Nine Months Nine Months
1999 1998
___________________________ ___________________________ ____________________________
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans.....................$ 188,158 $ 12,496 8.86%$ 190,546 $ 13,535 9.48% (1,039) (168) (871)
Residential mortgage loans............ 971,454 56,825 7.80% 928,909 56,273 8.08% 552 3,264 (2,712)
Home equity lines of credit .......... 142,433 8,337 7.83% 162,035 11,322 9.34% (2,985) (1,275) (1,710)
Installment loans..................... 23,068 2,224 12.89% 26,681 2,535 12.70% (311) (371) 60
--------- ------- --------- ------- ------- ----- -----
Loans, net of unearned income.........1,325,113 79,882 8.04% 1,308,171 83,665 8.53% (3,783) 1,450 (5,233)
Securities available for sale:
U.S. Treasuries and agencies......... 164,603 8,968 7.26% 216,779 12,268 7.55% (3,300) (2,857) (443)
Mortgage-backed securities........... 250,156 12,495 6.66% 175,125 9,047 6.89% 3,448 3,944 (496)
States and political subdivisions.... 133,563 7,927 7.91% 110,646 6,733 8.11% 1,194 1,463 (269)
Other ............................... 140,168 6,658 6.34% 93,150 4,368 6.25% 2,290 2,232 58
--------- ------- --------- ------- ------- ----- -----
Total securities available for sale 688,490 36,048 6.98% 595,700 32,416 7.26% 3,632 4,782 (1,150)
Federal funds sold.................... 337,158 12,330 4.89% 429,315 17,857 5.56% (5,527) (3,536) (1,991)
Other short-term funds................ 549 21 5.16% ----- ---- ---- 21 21 ---
--------- ------- --------- ------- ------- ----- -----
Total Interest earning assets.......2,351,310 128,281 7.28% 2,333,186 133,938 7.66% (5,657) 2,717 (8,374)
Allowance for loan losses............. (56,387) ------- (55,206) ------- ------- ----- -----
Cash and non-interest earning assets.. 132,765 149,442
--------- ---------
Total assets.......................$2,427,688 $ 2,427,422
========= =========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking..........$ 263,363 2,097 1.06%$ 243,213 $ 2,804 1.54% (707) 341 (1,048)
Money market accounts................ 59,878 1,222 2.73% 57,057 1,249 2.93% (27) 84 (111)
Savings.............................. 665,342 13,452 2.70% 658,164 15,662 3.18% (2,210) 276 (2,486)
Time deposits........................ 916,549 34,951 5.10% 966,838 41,974 5.80% (7,023) (2,103) (4,920)
--------- ------- --------- ------- ------- ----- -----
Total time deposits.................1,905,132 51,722 3.63% 1,925,272 61,689 4.28% (9,967) (1,402) (8,565)
Short-term borrowings................. 147,994 4,401 3.98% 147,115 5,329 4.84% (928) 53 (981)
--------- ------- --------- ------- ------- ----- -----
Total interest bearing liabilities..2,053,126 56,123 3.65% 2,072,387 67,018 4.32% (10,895) (1,349) (9,546)
Demand deposits....................... 152,041 ------- 135,885 ------- ------- ----- -----
Other liabilities..................... 40,729 41,063
Shareholders' equity.................. 181,792 178,087
--------- ---------
Total liab. & shareholders' equity.$2,427,688 $ 2,427,422
========= =========
Net interest income................... 72,158 66,920 5,238 4,066 1,172
------- ------- ------- ----- -----
Net interest spread................... 3.63% 3.34%
Net interest margin (net interest
income to total interest earning
assets)............................ 4.09% 3.82%
Tax equivalent adjustment 2,926 2,547
------- -------
Net interest income per book....... $ 69,232 $ 64,373
======= =======
25
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Company's interest rate
risk position since December 31, 1998. Other types of market risk, such
as foreign exchange rate risk and commodity price risk do not arise in the
normal course of the Company's business activities.
26
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 4, 1999 By: /s/ROBERT A. McCORMICK
--------------------------
Robert A. McCormick
President and
Chief Executive Officer
Date: November 4, 1999 By: /s/ROBERT T. CUSHING
--------------------------
Robert T. Cushing
Vice President and Chief
Financial Officer
27
Exhibits Index
(a) Exhibits - None
(b) Reports on Form 8-K
Filing of Form 8-K on August 17, 1999, regarding press release dated
August 17, 1999 declaring a quarterly cash dividend of $0.27 per share,
payable October 1, 1999, and the issuance of a two for one stock split,
to be distributed November 12, 1999 incorporated herein by reference.
Filing of Form 8-K on September 30, 1999, regarding a press release
dated September 30, 1999 announcing the retirement of Senior Vice
President Ralph A. Pidgeon incorporated herein by reference.
Filing of Form 8-K on October 19, 1999, regarding two press releases
with year to date and third quarter results for the period ending
September 30, 1999 incorporated herein by reference.
28