SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-25439
TROY FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1559508
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
32 Second Street, Troy, New York 12180
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
(518) 270-3313
--------------------------------------------------
(Registrant's telephone number, including area code)
not applicable
--------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check 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: AS OF MAY 10, 2000:
11,404,775 SHARES OF COMMON STOCK, PAR VALUE $.0001 PER SHARE.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
PAGE
----
<S> <C>
Item 1: Financial Statements
Consolidated Statements of Condition, March 31,
2000 (unaudited) and September 30, 1999 ............... 1
Consolidated Statements of Income, Three and Six
Months Ended March 31, 2000 and 1999
(unaudited) ........................................... 2
Consolidated Statements of Cash Flows, Six Months
Ended March 31, 2000 and 1999
(unaudited) ........................................... 3
Consolidated Statements of Changes in
Shareholders' Equity, Six Months Ended
March 31, 2000 and 1999 (unaudited) ................... 4
Notes to Unaudited Consolidated Interim
Financial Statements .................................. 5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 6
Item 3: Quantitative and Qualitative Disclosures About Market Risk....... 19
PART II - OTHER INFORMATION
Items 1-6 ............................................ II-1
Signature page ....................................... II-2
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>
TROY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
-------------- ------------------
ASSETS (In thousands, except share data)
------
(Unaudited)
<S> <C> <C>
Cash & due from banks ...................................................................... $ 19,553 $ 35,885
Federal funds sold ......................................................................... 9,391 50
--------- ---------
Total cash and cash equivalents .................................................. 28,944 35,935
Loans held for sale ........................................................................ 1,466 4,064
Securities available for sale, at fair value ............................................... 249,603 280,871
Investment securities held to maturity (fair value of $2,423 and $2,582
at March 31, 2000 and September 30, 1999, respectively) ............................. 2,442 2,534
Net loans receivable ....................................................................... 584,946 556,142
Accrued interest receivable ................................................................ 5,827 5,270
Other real estate owned .................................................................... 2,784 1,845
Premises & equipment, net .................................................................. 15,528 15,049
Other assets ............................................................................... 18,555 13,386
--------- ---------
Total assets ....................................................................... $ 910,095 $ 915,096
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Savings accounts .................................................................... 188,445 191,968
Money market accounts ............................................................... 20,653 20,348
N.O.W. and demand accounts .......................................................... 135,504 123,345
Time accounts ....................................................................... 216,108 227,712
--------- ---------
Total deposits ................................................................... 560,710 563,373
Mortgagors' escrow accounts ......................................................... 2,532 1,596
Securities sold under agreements to repurchase ...................................... 86,442 3,736
Short-term borrowings ............................................................... 20,000 100,700
Long-term debt ...................................................................... 53,266 44,497
Accrued interest payable ............................................................ 786 487
Official bank checks ................................................................ 2,959 9,651
Contributions payable ............................................................... 2,772 2,664
Other liabilities and accrued expenses .............................................. 10,132 7,953
--------- ---------
Total liabilities ................................................................ 739,599 734,657
Shareholders' Equity:
Preferred Stock, $.0001 par value; 15,000,000 shares authorized,
none issued ...................................................................... -- --
Common Stock, $.0001 par value; 60,000,000 shares authorized,
12,139,021 issued at March 31, 2000 and September 30, 1999 ....................... 1 1
Additional paid in capital .......................................................... 117,804 117,759
Unallocated common stock held by ESOP ............................................... (9,027) (9,620)
Unvested restricted stock awards .................................................... (4,342) --
Treasury stock, at cost ............................................................. (7,978) --
Retained earnings, substantially restricted ......................................... 75,334 72,699
Accumulated other comprehensive loss ................................................ (1,296) (400)
--------- ---------
Total shareholders' equity ....................................................... 170,496 180,439
--------- ---------
Total liabilities and shareholders' equity $ 910,095 $ 915,096
========= =========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
1
<PAGE>
TROY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
March 31, March 31,
---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest & dividend income:
Interest and fees on loans $11,377 $9,544 $22,629 $19,162
Securities available for sale:
Taxable 1,982 1,636 3,852 3,468
Tax exempt 748 532 1,449 1,044
------------ ------------ ------------ ------------
2,730 2,168 5,301 4,512
Investment securities held to maturity 49 56 99 118
Federal funds sold 184 527 355 670
------------ ------------ ------------ ------------
Total interest and dividend income 14,340 12,295 28,384 24,462
------------ ------------ ------------ ------------
Interest expense:
Deposits and escrow accounts 4,559 5,368 9,215 10,817
Short-term borrowings 1,013 95 1,615 196
Long-term debt 684 645 1,335 1,295
------------ ------------ ------------ ------------
Total interest expense 6,256 6,108 12,165 12,308
------------ ------------ ------------ ------------
Net interest income 8,084 6,187 16,219 12,154
Provision for loan losses 538 812 1,338 1,625
------------ ------------ ------------
Net interest income after provision for loan losses 7,546 5,375 14,881 10,529
------------ ------------ ------------ ------------
Non-interest income:
Service charges on deposits 250 212 511 442
Loan servicing fees 124 106 256 232
Trust service fees 137 155 339 305
Net gains from securities transactions 2 1 5 9
Net (losses) gains from mortgage loan sales (50) 196 (73) 184
Other income 212 176 788 297
------------ ------------ ------------ ------------
Total non-interest income 675 846 1,826 1,469
------------ ------------ ------------ ------------
Non-interest expense:
Compensation & employee benefits 3,078 2,536 6,166 5,268
Occupancy 532 522 997 1,027
Furniture, fixtures, & equipment 217 205 411 378
Computer charges 383 349 817 741
Professional, legal and other fees 303 475 712 656
Printing, postage and telephone 214 168 448 320
Other real estate owned 60 553 163 619
Contributions 16 4,299 88 4,369
Other 597 1,311 1,485 1,881
------------ ------------ ------------ ------------
Total non-interest expense 5,400 10,418 11,287 15,259
------------ ------------ ------------ ------------
Income (loss) before income tax expense (benefit) 2,821 (4,197) 5,420 (3,261)
Income tax expense (benefit) 752 (1,848) 1,471 (1,615)
------------ ------------ ------------ ------------
Net income (loss) $2,069 ($2,349) $3,949 ($1,646)
============ ============ ============ ============
Earnings per share:
Basic $0.21 n/a $0.38 n/a
Diluted $0.21 n/a $0.38 n/a
</TABLE>
Earnings per share calculations are not applicable for periods prior to the
initial public offering on March 31, 1999.
See accompanying notes to unaudited consolidated interim financial statements.
2
<PAGE>
TROY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $3,949 ($1,646)
Adjustments to reconcile net income /(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 656 653
Provision for loan losses 1,338 1,625
Amortization of restricted stock awards 482 --
ESOP compensation expense 638 --
Net accretion of discount on securities (918) (1,670)
Net gains from securities transactions (5) (9)
Net loss/(gain) from mortgage loan sales 73 (184)
Net loss on sale of other real estate owned 4 13
Write down of other real estate owned 362 229
Proceeds from sales of loans held for sale 8,232 40,891
Net loans made to customers and held for sale (5,707) (37,162)
(Increase)/decrease in accrued interest receivable (557) 414
Increase in other assets (4,570) (2,063)
Increase in accrued interest payable 299 333
Charitable foundation contribution -- 4,084
Decrease in official bank checks, contributions payable
accrued expenses and other liabilities (4,405) (2,820)
------------------ ------------------
Total adjustments (4,078) 4,334
------------------ ------------------
Net cash (used in) provided by operating activities (129) 2,688
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities available for sale 31,904 1,046
Proceeds from maturity and paydown of securities available for sale 230,452 220,972
Purchases of securities available for sale (231,660) (298,841)
Proceeds from maturity of investment securities 92 733
Proceeds from sale of other real estate owned 2,514 345
Net loans made to customers (33,961) (30,885)
Purchases of premises and equipment (1,135) (1,715)
------------------ ------------------
Net cash used in investing activities (1,794) (108,345)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (2,663) (11,487)
Net increase in mortgagors' escrow accounts 936 445
Excess subscription funds held in escrow -- 77,396
Net increase (decrease) in securities sold under agreements to repurchase 82,706 (619)
Net decrease in short term borrowings (80,700) --
Proceeds from issuance of long term debt 9,000 5,700
Payments on long term debt (231) (218)
Dividends paid (1,179) --
Purchase of treasury stock (12,937) --
Net proceeds from stock offering -- 113,676
------------------ ------------------
Net cash (used in) provided by financing activities (5,068) 184,893
------------------ ------------------
Net (decrease) increase in cash and cash equivalents (6,991) 79,236
------------------ ------------------
Cash and cash equivalents at beginning of period 35,935 17,915
------------------ ------------------
Cash and cash equivalents at end of period $28,944 $97,151
================== ==================
SUPPLEMENTAL INFORMATION
CASH PAID FOR:
Interest on deposits and borrowings $11,866 $11,975
Income taxes 1,330 330
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Net reduction in loans resulting from the transfer to other real estate owned 3,819 320
Adjustment of securities available for sale to fair value, net of tax (896) (193)
Grant of restricted stock awards 4,824 --
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements
3
<PAGE>
TROY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
March 31,
(in thousands, except share and per share data) 2000 1999
==============================================================================================================================
<S> <C> <C> <C> <C>
COMMON STOCK
Balance at beginning of period $1 $ -
Issuance of 11,730,575 shares of $0.0001 par value
common stock in initial public offering - 1
Issuance of 408,446 shares of $0.0001 par value
common stock to The Troy Savings Bank Community Foundation - -
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $1 $1
- ------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $117,759 $ -
Issuance of 11,730,575 shares of common stock in
initial public offering, net of offering costs of $3,630 - 113,675
Issuance of 408,446 shares of common stock to The Troy Savings
Bank Charitable Foundation - 4,084
Adjustment for ESOP shares released for allocation 45 -
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $117,804 $117,759
- ------------------------------------------------------------------------------------------------------------------------------
UNALLOCATED COMMON STOCK HELD BY ESOP
Balance at beginning of period $(9,620) -
ESOP shares released for allocation 593
-
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $(9,027) -
- ------------------------------------------------------------------------------------------------------------------------------
UNVESTED RESTRICTED STOCK AWARDS
Balance at beginning of period $ - -
Grant of restricted stock awards (446,165 shares) (4,824) -
Amortization of restricted stock awards 482 -
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $(4,342) -
- ------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance at beginning of period $ - -
Purchase of treasury stock (1,180,411 shares) (12,937) -
Grant of restricted stock awards (446,165 shares) 4,959 -
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $(7,978) -
- ------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period $72,699 $70,622
Net income (loss) 3,949 $3,949 (1,646) ($1,646)
Cash dividends ($0.10 per share) (1,179)
Adjustment for grant of restricted stock awards (135)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $75,334 $68,976
- ------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of period $(400) $407
Unrealized net holding losses on securities available for
sale arising during the period (pre-tax ($1,488) and ($313)) (893) (188)
Reclassification adjustment for net gains on securities
available for sale realized in net income (pre-tax $5 and $9) (3) (5)
- ------------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss $(896) (896) $(193) (193)
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $3,053 ($1,839)
====== =======
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $(1,296) $214
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity at March 31 $170,496 $186,950
==============================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements
4
<PAGE>
Notes to Unaudited Consolidated
Interim Financial Statements
Note 1. Basis of Presentation
The unaudited consolidated interim financial statements include the accounts of
Troy Financial Corporation (the "Company") and its wholly owned subsidiary, The
Troy Savings Bank (the "Bank"), and the Bank's subsidiaries. The Company became
the bank holding company of the Bank on March 31, 1999. Accordingly, all
financial data as of and for periods prior to such date are the consolidated
data of the Bank and its subsidiaries. The September 30, 1999 data in the
Consolidated Statements of Condition is derived from the Company's audited
consolidated financial statements. All intercompany accounts and transactions
have been eliminated in consolidation.
The unaudited consolidated interim financial statements reflect all adjustments
of a normal recurring nature which are necessary for a fair presentation of the
results for the interim periods presented and should be read in conjunction with
the consolidated financial statements and related notes included in the
Company's annual report on Form 10-K as of and for the year ended September 30,
1999. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full fiscal year
ending September 30, 2000. Reclassifications are made whenever necessary to
conform to the current year presentation.
Note 2. Earnings Per Share
Basic earnings per share is calculated by dividing net income by the
weighted-average number of common shares outstanding during the period. Shares
of restricted stock are not considered outstanding for the calculation of basic
earnings per share until they become fully vested. Diluted earnings per share is
calculated in a manner similar to basic earnings per share except that the
weighted-average number of common shares outstanding is increased to include the
number of additional common shares that would have been outstanding if all
potentially dilutive common shares (such as stock options and unvested
restricted stock) were issued during the reporting period. Unallocated common
shares held by the ESOP are not included in the weighted-average number of
common shares outstanding for either the basic or diluted earnings
5
<PAGE>
per share calculations.
The following table sets forth certain information regarding the calculation of
basic and diluted earnings per share for the three month and six month periods
ended March 31, 2000:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, 2000 March 31, 2000
-------------- --------------
(in thousands, except share and per share data)
-----------------------------------------------
<S> <C> <C>
Net income $2,069 $3,949
====== ======
Weighted average shares 10,085,567 10,397,529
Dilutive effect of potential common shares
related to stock compensation plans 6,687 8,216
----- -----
Weighted average common shares including
potential dilution 10,092,254 10,405,745
========== ==========
Basic earnings per share $0.21 $0.38
Diluted earnings per share $0.21 $0.38
</TABLE>
Note 3. Comprehensive Income
Comprehensive income includes the reported net income of the 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 or loss, which
consists of the net change in unrealized gains or losses on securities available
for sale for the period, net of tax. Accumulated other comprehensive income or
loss represents the net unrealized gains or losses on securities available for
sale, net of tax, as of the balance sheet dates.
Note 4. Impact of New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In May 1999, this
statement was delayed by the FASB; consequently it will now be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Management is
currently evaluating the impact of this Statement on the Company's consolidated
financial statements.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Troy Financial Corporation (the "Company") was formed in December 1998
to acquire all of the capital stock of The Troy Savings Bank (the "Bank") upon
the Bank's conversion from a New York-chartered mutual savings bank to a New
York-chartered stock savings bank. Upon the Bank's conversion on March 31, 1999,
the Company completed its initial public offering of stock, issuing 12,139,021
shares of common stock, par value $.0001 per share ("Common Stock"), including
408,446 shares contributed to The Troy Savings Bank Community Foundation (the
"Foundation"). The Company sold 11,730,575 shares of Common Stock at a price of
$10 per share through a subscription offering to certain depositors of the Bank.
Net proceeds to the Company from the offering were $113.7 million after
conversion costs and offering costs. The Company invested approximately $57
million of the net proceeds to acquire the Bank, and the Company used $9.6
million of the net proceeds from the conversion to fund a loan to the Bank's
6
<PAGE>
employee stock ownership plan (the "ESOP") which allowed the ESOP to purchase
971,122 shares of Common Stock in the open market. The Company's Common Stock is
traded on the NASDAQ Stock Market National Market Tier under the symbol "TRYF."
The consolidated financial condition and operating results of the
Company are primarily dependent upon its wholly owned subsidiary, the Bank, and
the Bank's subsidiaries, and all references to the Company prior to March 31,
1999, except where otherwise indicated, are to the Bank.
The Bank is a community based, full service financial institution
offering a wide variety of business and retail banking products. The Bank and
its subsidiaries also offer a full range of trust, insurance, and investment
services. The Bank's primary sources of funds are deposits and borrowings, which
it uses to originate real estate mortgages, both residential and commercial,
commercial business loans, and consumer loans throughout its primary market area
which consists of the six New York counties of Albany, Saratoga,
Schenectady,Warren, Washington, and Rensselaer (Troy).
The Company's profitability, like many that of financial institutions,
is dependent to a large extent upon its net interest income, which is the
difference between the interest it receives on interest earning assets, such as
loans and securities, and the interest it pays on interest bearing liabilities,
principally deposits and borrowings.
Results of operations are also affected by the Bank's provision for
loan losses, non-interest expenses such as salaries and employee benefits,
occupancy and other operating expenses and to a lesser extent, non-interest
income such as trust service fees, loan servicing fees and service charges on
deposit accounts. Financial institutions in general, including the Company, are
significantly affected by economic conditions, competition and the monetary and
fiscal policies of the federal government. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, interest rate
conditions and funds availability. Deposit balances and cost of funds are
influenced by prevailing market rates on competing investments, customer
preferences and levels of personal income and savings in the Bank's primary
market area.
FINANCIAL CONDITION
The Company's total assets were $910.1 million at March 31, 2000, a decrease of
$5.0 million, or 0.6% from the $915.1 million at September 30, 1999. Cash and
cash equivalents were $28.9 million at March 31, 2000, a decrease of $7.0
million from the $35.9 million at September 30, 1999. The decrease was
principally due to a $16.0 million reduction in excess cash reserves held in
anticipation of an increased demand for cash by depositors in anticipation of
Year 2000 liquidity needs, offset by a $9.3 million increase in federal funds
sold.
The Bank's securities available for sale portfolio was $249.6 million at March
31, 2000, a
7
<PAGE>
decrease of $31.3 million, or 11.1% from the $280.9 million as of September 30,
1999. The decrease in securities was principally due to the use of funds from
repayments and maturities for the continued growth in the loan portfolio, as
well as the repurchase of 1.1 million shares of common stock, of which 485,561
were purchased for the Company's Long-Term Equity Compensation Plan, as the
Company completed its first repurchase program which was approved in September
1999. The Company awarded 446,165 of the 485,561 total shares of common stock
purchased under the Company's Long-Term Equity Compensation Plan with the
balance included in treasury stock, at cost.
Total loans receivable were $596.3 million as of March 31, 2000, an increase of
$29.3 million or 5.2% over the $566.9 million as of September 30, 1999. The
following table shows the loan portfolio composition as of the respective
balance sheet dates:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
---------------------------- -----------------------
% of loans % of loans
-----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Residential mortgage $226,622 38.0% $221,721 39.1%
Commercial 224,350 37.6% 216,700 38.2%
Construction 17,675 3.0% 13,761 2.4%
------ ---- ------ ----
Total real estate loans 468,647 78.6% 452,182 79.7%
------- ----- ------- -----
Commercial business loans 84,448 14.1% 66,274 11.7%
------ ----- ------ -----
Consumer loans:
Home equity lines of credit 6,488 1.1% 6,776 1.2%
Other consumer 37,006 6.2% 42,081 7.4%
------ ---- ------ ----
Total consumer loans 43,494 7.3% 48,857 8.6%
------ ---- ------ ----
Gross loans 596,589 100.0% 567,313 100.0%
====== ======
Net deferred loan fees and costs and unearned discount (338) (407)
----- -----
Total loans $596,251 $566,906
======== ========
</TABLE>
Commercial real estate loans increased $7.7 million to $224.4 million at March
31, 2000 or 37.6% of total loans, from $216.7 million at September 30, 1999, or
38.2% of total loans. Commercial business loans increased $18.2 million to $84.4
million or 14.2% of total loans at March 31, 2000, up from $66.3 million or
11.7% of total loans at September 30, 1999. Construction loans increased $3.9
million to $17.7 million or 3.0% of total loans at March 31, 2000, up from $13.8
million or 2.4% of total loans at September 30, 1999. The increase in the
commercial real estate and construction loans, as well as commercial business
loans, is consistent with the Company's strategy to increase these loan
portfolios as part of its emphasis on commercial banking activities. Residential
real estate loans increased $4.9 million to $226.6 million, or 38.0% of total
loans, at March 31, 2000, from $221.7 million at September 30, 1999, or 39.1% of
total loans. The increase in residential loans is primarily in home equity
loans.
Non-performing assets were $8.3 million, or .92% of total assets at March 31,
2000. The table below sets forth the amounts and categories of the Company's
non-performing assets.
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------------------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Real estate loans:
Residential mortgage $2,509 $2,707
Commercial mortgage 2,717 4,210
----- -----
Total real estate loans 5,226 6,917
Commercial business loans 5 10
Home equity lines of credit 105 58
Other consumer loans 166 282
--- ---
Total non-accrual loans 5,502 7,267
Troubled debt restructurings 56 616
-- ---
Total non-performing loans $5,558 $7,883
====== ======
Other real estate owned :
Residential real estate 420 76
Commercial real estate 2,364 1,769
----- -----
Total other real estate owned 2,784 1,845
----- -----
Total non-performing assets $8,342 $9,728
====== ======
Allowance for loan losses $11,305 $10,764
======= =======
Allowance for loan losses as a percentage of
non-performing loans 203.40% 136.55%
Non-performing loans as a percentage of
total loans 0.93% 1.39%
Non-performing assets as a percentage of
total assets 0.92% 1.06%
</TABLE>
The $2.3 million decrease in non-performing loans at March 31, 2000 as compared
to September 30, 1999 was attributable primarily to the foreclosure of a
commercial real estate loan which was transferred to other real estate owned and
sold prior to March 31, 2000. Other real estate owned increased by $1.2 million,
principally from an increase of $1.3 million for the foreclosure of two other
commercial real estate loans, partially offset by a decrease of $80,000 in
foreclosed residential real estate. The following table summarizes the activity
in other real estate owned for the periods presented:
<TABLE>
<CAPTION>
Six months ended March 31,
2000 1999
---- ----
(in thousands)
<S> <C> <C>
Balance at the beginning of the period $1,845 $1,872
Loans transferred to Other Real Estate 3,819 320
Sale of Other Real Estate (2,518) (358)
Write down of Other Real Estate (362) (229)
----- -----
Balance at the end of the period $2,784 $1,605
====== ======
</TABLE>
8
<PAGE>
The allowance for loan losses was $11.3 million, or 1.90% of period end loans at
March 31, 2000, as compared to $10.8 million, or 1.90% of period end loans at
September 30, 1999. The allowance for loan losses as a percentage of
non-performing loans was 203.40% at March 31, 2000, as compared to 136.55% as of
September 30, 1999. There were no loans past due 90 days and still accruing at
March 31, 2000 or September 30, 1999. The following table summarizes the
activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Six months ended March 31,
2000 1999
---- ----
(in thousands)
<S> <C> <C>
Allowance at the beginning of the period $10,764 $8,260
Charge-offs (1,208) (348)
Recoveries 411 182
--- ---
Net charge-offs (797) (166)
----- -----
Provision for loan losses 1,338 1,625
----- -----
Allowance at end of the period $11,305 $9,719
======= ======
</TABLE>
Total deposits were $560.7 million at March 31, 2000, a decrease of $2.7
million, or 0.5% from the $563.4 million at September 30, 1999. The following
table shows the deposit composition as of the respective balance sheet dates:
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
-------------- ------------------
(In Thousands) % of Deposits (In Thousands) % of Deposits
<S> <C> <C> <C> <C>
Savings accounts $188,445 33.6% $191,968 34.1%
Time accounts 216,108 38.5% 227,712 40.4%
Money market accounts 20,653 3.7% 20,348 3.6%
NOW & Super NOW accounts 94,211 16.8% 86,305 15.3%
Demand accounts 41,293 7.4% 37,040 6.6%
------ ---- ------ ----
$560,710 100.0% $563,373 100.0%
======== ====== ======== ======
</TABLE>
The $2.7 million decrease in deposits from September 30, 1999 is primarily
attributable to an $11.6 million decrease in time deposits, a $3.5 million
decrease in savings deposits, partially offset by a $12.2 million increase in
demand deposits and a $305,000 increase in money market accounts. The decline in
time deposit accounts is attributable to the lower rates paid by the Company in
the quarter ended March 31, 2000 as compared to some other financial
institutions. However, the Company is currently pricing its time deposits more
competitively in order to retain core deposits and to minimize the outflow. The
Company has recently filed an application with the New York State Banking
Department to establish a commercial bank subsidiary to generate additional
funding through the acceptance of municipal deposits.
The Company increased its borrowings with the FHLB to $158.2 million at March
31, 2000, an increase of $13.1 million from the $145.2 million at September 30,
1999. The Company used the additional borrowings to offset the decrease in
deposits, to fund the loan growth, and to
9
<PAGE>
repurchase shares of the Company's common stock.
Shareholders' equity at March 31, 2000 was $170.5 million, a decrease of $9.9
million or 5.5% from the $180.4 million at September 30, 1999. The decrease was
principally attributable to the repurchase of shares of common stock under the
Company's approved repurchase program, of which 485,561 shares were purchased
for the Company's Long-Term Equity Compensation Plan. The Company utilized
445,561 of the shares for awards of restricted stock under the Long-Term Equity
Compensation Plan with the remaining balance included in treasury stock, at
cost. Shareholders' equity was increased by the Company's $3.9 million of net
income, partially offset by the $1.2 million of cash dividends paid in the six
months ended March 31, 2000 and the $896,000 increase in accumulated other
comprehensive loss. Shareholders' equity was also increased by $593,000 for the
ESOP shares allocated as of December 31, 1999 and $482,000 due to the
amortization of restricted stock awards. Shareholders' equity as a percentage of
total assets was 18.73% at March 31, 2000 compared to 19.72% at September 30,
1999.
TABLE #1 AVERAGE BALANCE, INTEREST, YIELD AND RATE
The following table presents, for the periods indicated, the total dollar amount
of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. Tax equivalent adjustments reflected
principally on municipal securities and commercial business loans totaled
$412,000 in the three month period ended March 31, 2000, and $297,000 for the
comparable three month period. All average balances are daily average balances.
Non-accruing loans have been included in the table as loans receivable with
interest earned recognized on a cash basis only. Securities available for sale
are shown at amortized cost.
<TABLE>
<CAPTION>
For the three months ended March 31,
----------------------------------------------------------------------
2000 1999
---------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Total loans $597,188 $11,386 7.63% $489,652 $9,483 7.75%
Loans held for sale 2,104 41 7.79% 5,766 106 7.35%
Investment securities held to maturity 2,464 49 7.95% 2,801 56 8.00%
Securities available for sale:
Taxable 125,036 1,982 6.34% 126,620 1,636 5.17%
Tax-exempt 72,333 1,110 6.14% 54,535 784 5.75%
------- ----- ------ ---
Total securities available for sale 197,369 3,092 6.27% 181,155 2,420 5.34%
Federal funds sold and other short term investments 12,510 184 5.88% 43,144 527 4.89%
------- ----- ------ ---
Total earning assets 811,635 14,752 7.27% 722,518 12,592 6.97%
INTEREST BEARING LIABILITIES:
Deposits:
NOW and Super NOW accounts 87,393 475 2.17% 80,178 441 2.20%
Money market deposit accounts 18,360 138 3.01% 18,347 136 2.97%
Savings accounts 187,119 1,321 2.82% 199,688 1,396 2.80%
Time deposits accounts 216,902 2,616 4.82% 250,353 3,133 5.01%
Conversion funds in escrow -- -- -- 36,272 253 2.79%
Escrow accounts 2,277 9 1.58% 2,198 9 1.64%
------- ----- ------ ---
Total interest-bearing deposits 512,051 4,559 3.56% 587,036 5,368 3.66%
Borrowings:
Securities sold under agreements to repurchase 47,797 699 5.85% 3,220 26 3.23%
Short-term borrowings 21,526 314 5.83% 5,904 69 4.67%
Long term-debt 47,071 684 5.81% 44,759 645 5.76%
------- ----- ------ ---
Total borrowings 116,394 1,697 5.83% 53,883 740 5.49%
------- ----- ------ ---
Total interest-bearing liabilities 628,445 6,256 3.98% 640,919 6,108 3.81%
Net interest spread 3.29% 3.16%
Net interest income / net interest margin 8,496 4.19% 6,484 3.59%
===== =====
Ratio of interest earning assets to
interest bearing liabilities 129.15% 112.73%
Tax equivalent adjustment 412 297
--- ---
Net interest income as per consolidated
financial statements $8,084 $6,187
====== ======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
1999
GENERAL
For the three months ended March 31, 2000, the Company recorded net income of
$2.1 million, an increase of $4.4 million as compared to a net loss of $2.3
million for the three month period ended March 31, 1999. The increase was
principally the result of higher net interest income and lower non-interest
expense, as a result of the $4.1 million stock contribution to The Troy Savings
Bank Community Foundation made in the quarter ended March 31, 1999, which was
partially offset by lower non-interest income and higher income tax expense. The
Company's diluted earnings per share were $0.21 for the three months ended March
31, 2000.
Annualized return on average assets for the three months ended March 31, 2000
and 1999, was 0.97% and (1.24%), respectively, and the Company's annualized
return on average equity was 4.89% and (12.90%), respectively.
10
<PAGE>
NET INTEREST INCOME
Net interest income on a tax equivalent basis for the three months ended March
31, 2000, was $8.5 million, an increase of $2.0 million, or 31.0%, when compared
to the three months ended March 31, 1999. The increase was primarily
attributable to an $89.1 million increase in average interest earning assets
(funded primarily by the net proceeds from the Company's initial public offering
on March 31, 1999) offset partially by the $12.5 million decrease in average
interest bearing liabilities. The decrease in average interest bearing
liabilities was the result of a decrease in average deposits of $75.0 million,
primarily the result of a $33.5 million decrease in time deposit accounts, a
$12.6 million decrease in savings accounts and a $36.3 million decrease in
conversion funds held in escrow, partially offset by a $7.4 million increase in
interest-bearing checking and a $62.5 million increase in borrowings. Net
interest income was also positively affected by the 30 basis point increase in
the yield on average earning assets, which was partially offset by the 17 basis
point increase in the average cost of funds.
Interest and dividend income for the three months ended March 31, 2000 was $14.8
million on a tax equivalent basis, an increase of $2.2 million, or 17.2%, over
the prior year. The increase was principally due to the increase in the volume
of earning assets as well as the 30 basis point increase in the average yield on
interest earning assets.
The average yield on taxable available for sale securities increased by 117
basis points for the three months ended March 31, 2000, compared to the same
period in 1999, which more than offset the $1.6 million decrease in average
balance of taxable available for sale securities. The Company has invested on
average for the quarter ended March 31, 2000, approximately $43.7 million in
short-term government agency discount bonds to preserve certain tax advantages
while providing liquidity comparable to federal funds and still offering a yield
comparable to the 5.88% average yield for federal funds sold. The average loan
yield for the three months ended March 31, 2000 was 7.63%, down 12 basis points
from the same period in the previous year, but was 136 basis points more than
the 6.27% average yield on available for sale securities. The Company has also
invested in tax-exempt municipal securities, primarily maturing within one year.
The average tax equivalent yield on these securities for the three months ended
March 31, 2000 was 6.14%, 39 basis points higher than the yield for the same
period in 1999, and 26 basis points higher than the average yield on federal
funds sold and other short-term investments for the three months ended March 31,
2000.
Interest expense for the three months ended March 31, 2000, was $6.3 million, an
increase of $148,000, or 2.4% over the three month period ended March 31, 1999.
The change was principally due to a 17 basis point increase in the average cost
of funds which was partially
11
<PAGE>
offset by the decrease in average volume of interest bearing liabilities. The
average balance of interest bearing liabilities was $628.4 million for the three
months ended March 31, 2000, a decrease of $12.5 million, or 1.9%, from the
prior year's comparable period. This decrease was primarily attributable to a
decrease in deposits of $75.0 million, principally due to a $33.5 million
decrease in time deposit accounts, a $12.6 million decrease in savings accounts
and a $36.3 million decrease in conversion funds held in escrow, partially
offset by a $7.2 million increase in interest-bearing checking and a $62.5
million increase in borrowings. The average balance of FHLB borrowings was
$111.8 million for the three months ended March 31, 2000, as compared to $50.7
million in the comparable three month period last year. The increase in
short-term FHLB advances partially offset the $33.5 million decline in time
deposit accounts, which the Company experienced as a result of time deposit
rates offered at slightly lower rates than other financial institutions
operating in the Company's primary market area.
The Company's net interest margin was 4.19% for the three months ended March 31,
2000, compared to 3.59% for the comparable three month period. The primary
factor was an $89.1 million increase in average earning assets, due primarily to
the Company's initial public offering as well as the 30 basis point increase in
the average yield on earning assets, partially offset by the 17 basis point
increase in cost of funds. The increase in cost of funds was principally caused
by the increase in volume of average borrowings and the increase in the average
rates paid on the borrowings, partially offset by the decrease in the volume of
average deposits and the decrease in rates paid on time deposit accounts. The
increase in the yield on interest earning assets was caused by the investment of
a substantial portion of the offering proceeds in loans, primarily commercial
real estate and commercial business loans, with higher yields than securities or
federal funds and other short term investments.
For more information on average balances, interest, yields and rates, please
refer to Table #1, included in this report.
PROVISION FOR LOAN LOSSES
The Company establishes an allowance for loan losses through a provision for
loan losses charged to operations. The adequacy of the amount of the allowance
is determined by management's evaluation of various risk factors inherent in the
loan portfolio. This analysis takes into consideration such factors as the
historical loan loss experience, changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect borrowers' ability to pay.
The provision for loan losses was $538,000 for the three months ended March 31,
2000, a decrease of $274,000, or 33.7%, from the provision of $812,000 for the
comparable period of the prior year. The allowance for loan losses was $11.3
million, or 1.90% of period end loans at March 31, 2000, as compared to $10.8
million, or 1.90% of period end loans at September 30, 1999. The allowance for
loan losses as a percentage of non-performing loans was 203.40% at March 31,
2000 as compared to 136.55% at September 30, 1999. Non-performing loans were
12
<PAGE>
$5.6 million, or 0.93% of total loans at March 31, 2000, compared to $7.9
million, or 1.39% of total loans at September 30, 1999. Net loan charge-offs
increased $631,000 for the six month period ended March 31, 2000 as compared to
same period in 1999. However, the provision for loan losses was reduced in the
quarter ended March 31, 2000 as a result of a $3.1 million decline in
non-performing loans, or 35.7%, as compared to the quarter ended March 31, 1999.
Non-performing loans currently represent 0.93% of total loans as of March 31,
2000, down from 1.39% at September 30, 1999, and 1.74% at March 31, 1999.
Commercial real estate loans and commercial business loans represent 51.7% of
the total loan portfolio at March 31, 2000 compared to 49.9% at September 30,
1999.
NON-INTEREST INCOME
Non-interest income was $675,000 for the three months ended March 31, 2000, a
decrease of $171,000, or 20.2% from the three months ended March 31, 1999. The
decrease was principally due to the $246,000 decrease in net gains from mortgage
loan sales as the volume of loans originated for sale has declined significantly
in the quarter ended March 31, 2000, as compared to the same period in 1999, as
well as a slight decline in trust service fees. The decrease was partially
offset by a $38,000 increase in service charges on deposit accounts, an $18,000
increase in loan servicing fees as the balance of loans serviced has increased
from the prior year, and a $36,000 increase in other income as the result of
fees received by the Bank's insurance subsidiary.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended March 31, 2000 was $5.4 million,
a decrease of $5.0 million, or 48.2%, from the same period in 1999. The decrease
was principally due to the $4.1 million stock contribution made in the quarter
ended March 31, 1999 to The Troy Savings Bank Community Foundation. Personnel
expense increased by $542,000 during the three months ended March 31, 2000, as
compared to the prior year due to the additional costs in the 2000 period for
the ESOP and the restricted stock awards. Professional fees decreased by
$172,000, or 36.2% for the three months ended March 31, 2000, over the
comparable period of the prior year, primarily due to costs of $189,000 for
consulting fees incurred in the three months ended March 31, 1999, for
establishing a profitability measurement system, Y2K technology evaluations,
administrative costs for the ESOP and 401K plans, and administrative costs to
establish a Small Business Investment Company. Other real estate owned expense
decreased $493,000, or 89.2%, for the three months ended March 31, 2000, as
compared to the same period in 1999. The decrease in expense was principally due
to a write-down in value of a foreclosed commercial real estate property and
costs related to payment of taxes on other real estate owned which occurred in
the quarter ended March 31, 1999 and were not repeated in the three months ended
March 31, 2000. Other expense decreased by $714,000, or 54.5%, for the three
months ended March 31, 2000, as compared to the three months ended March 31,
1999. This decrease was primarily attributable to a $382,000 expense for Year
2000 remediation efforts in the 1999 period, as well as the write-off of
overdraft escrow accounts and costs related to a direct mail loan program.
13
<PAGE>
INCOME TAX EXPENSE
Income tax expense for the three months ended March 31, 2000, was $752,000, as
compared to an income tax benefit of $1.8 million for the comparable period in
1999. The increase was primarily caused by the $7.0 million increase in income
before taxes for the three months ended March 31, 2000, as compared to the same
period in the prior year. The difference in income before taxes is primarily
related to the $4.1 million stock contribution to The Troy Savings Bank
Community Foundation made in the quarter ended March 31, 1999.
TABLE #2 AVERAGE BALANCE, INTEREST, YIELD AND RATE
The following table presents, for the periods indicated, the total dollar amount
of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. Tax equivalent adjustments reflected
principally on municipal securities and commercial business loans totaled
$811,000 in the six month period ended March 31, 2000, and $544,000 for the
comparable six month period. All average balances are daily average balances.
Non-accruing loans have been included in the table as loans receivable with
interest earned recognized on a cash basis only. Securities available for sale
are shown at amortized cost.
<TABLE>
<CAPTION>
For the six months ended March 31,
------------------------------------------------------------------
2000 1999
--------------------------------- -------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Total loans $586,524 $22,643 7.72% $483,520 $18,937 7.83%
Loans held for sale 2,517 98 7.79% 6,766 270 7.98%
Investment securities held to maturity 2,487 99 7.96% 3,026 118 7.80%
Securities available for sale:
Taxable 122,466 3,852 6.29% 132,121 3,468 5.25%
Tax-exempt 71,111 2,148 6.04% 53,219 1,543 5.80%
------- ----- ------- -----
Total securities available for sale 193,577 6,000 6.20% 185,340 5,011 5.41%
Federal funds sold and other short term investments 12,426 355 5.71% 26,754 670 5.01%
------- ----- ------- -----
Total earning assets 797,531 29,195 7.32% 705,406 25,006 7.09%
INTEREST BEARING LIABILITIES:
Deposits:
NOW and Super NOW accounts 86,542 952 2.20% 79,152 870 2.20%
Money market deposit accounts 18,812 284 3.02% 17,925 270 3.01%
Savings accounts 187,670 2,664 2.84% 198,388 2,861 2.88%
Time deposits accounts 220,361 5,293 4.80% 252,339 6,543 5.19%
Conversion funds in escrow -- -- -- 18,136 253 2.79%
Escrow accounts 2,567 22 1.71% 2,479 20 1.61%
------- ----- ------- -----
Total interest-bearing deposits 515,952 9,215 3.57% 568,419 10,817 3.81%
Borrowings:
Securities sold under agreements to repurchase 25,620 724 5.65% 3,888 69 3.55%
Short-term borrowings 31,084 891 5.73% 5,312 127 4.78%
Long term-debt 45,749 1,335 5.84% 44,673 1,295 5.80%
------- ----- ------- -----
Total borrowings 102,453 2,950 5.76% 53,873 1,491 5.54%
------- ----- ------- -----
Total interest-bearing liabilities 618,405 12,165 3.93% 622,292 12,308 3.96%
Net interest spread 3.39% 3.13%
Net interest income / net interest margin 17,030 4.27% 12,698 3.60%
====== ======
Ratio of interest earning assets to
interest bearing liabilities 128.97% 113.36%
Tax equivalent adjustment 811 544
--- ---
Net interest income as per consolidated
financial statements $16,219 $12,154
======= =======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
GENERAL
For the six months ended March 31, 2000, the Company recorded net income of $3.9
million, an increase of $5.6 million, as compared to a net loss of $1.6 million
for the six month period ended March 31, 1999. The increase was principally the
result of higher net interest income, lower non-interest expense, as a result of
the $4.1 million stock contribution to The Troy Savings Bank Community
Foundation made in the quarter ended March 31, 1999, and higher non-interest
income, partially offset by higher income tax expense. The Company's diluted
earnings per share were $0.38 for the six months ended March 31, 2000.
Annualized return on average assets for the six months ended March 31, 2000 and
1999, was 0.93% and (0.45%), respectively, and the Company's annualized return
on average equity was 4.54% and (4.56%), respectively.
NET INTEREST INCOME
Net interest income on a tax equivalent basis for the six months ended March 31,
2000, was $17.0 million, an increase of $4.3 million, or 34.1%, when compared to
the six months ended March 31, 1999. The increase was primarily attributable to
an $92.1 million increase in average
14
<PAGE>
interest earning assets funded primarily by the net proceeds from the Company's
initial public offering on March 31, 1999, offset slightly by the $3.9 million
decrease in average interest bearing liabilities.
The decrease in average interest bearing liabilities was the result of a
decrease in deposits of $52.5, primarily the result of a $32.0 million decrease
in time deposit accounts, a $10.7 million decrease in savings accounts and a
$18.1 million decrease in subscription funds held in escrow, partially offset by
an $7.4 million increase in interest-bearing checking, and a $48.6 million
increase in borrowings. Net interest income was also positively affected by the
23 basis point increase in the yield on average earning assets and the 3 basis
point decrease in the average cost of funds.
Interest and dividend income for the six months ended March 31, 2000 was $29.2
million on a tax equivalent basis, an increase of $4.2 million, or 16.8%, over
the prior year. The increase was principally due to the increase in the volume
of earning assets as well as the 23 basis point increase in the average yield on
interest earning assets.
The average yield on taxable available for sale securities increased by 104
basis points for the six months ended March 31, 2000, compared to the same
period in 1999, which more than offset the $9.7 million decrease in average
balance of taxable available for sale securities. The Company has invested on
average for the six months ended March 31, 2000, approximately $52.8 million in
short-term government agency discount bonds to preserve certain tax advantages
while providing liquidity comparable to federal funds and still offering a yield
slightly higher than the 5.71% average yield for federal funds sold. The average
loan yield for the six months ended March 31, 2000 was 7.72%, down 11 basis
points from the same period in the previous year, but was 152 basis points more
than the 6.20% average yield on available for sale securities. The Company has
also invested in tax-exempt municipal securities, primarily maturing within one
year. The average tax equivalent yield on these securities for the six months
ended March 31, 2000 was 6.04%, 24 basis points higher than the yield for the
same period in 1999, and 33 basis points higher than the average yield on
federal funds sold and other short-term investments for the six months ended
March 31, 2000.
Interest expense for the six months ended March 31, 2000, was $12.2 million, an
decrease of $143,000, or 1.2% over the six month period ended March 31, 1999.
The change was principally due to a 3 basis point decrease in the average cost
of funds and the decrease in average volume of interest bearing liabilities. The
average balance of interest bearing liabilities was $618.4 million for the six
months ended March 31, 2000, a decrease of $3.9 million, or 0.62%, primarily
attributable to a decrease in deposits of $52.5, principally due to a $32.0
million decrease in time deposit accounts, a $10.7 million decrease in savings
accounts and an $18.1 million decrease in subscription funds held in escrow,
partially offset by a $7.4 million increase in interest-bearing checking and a
$48.6 million increase in borrowings. The average balance of FHLB borrowings was
$98.6 million for the six months ended March 31, 2000, as compared to $50.0
million in the
15
<PAGE>
comparable six month period. The increase in short-term FHLB advances more than
offset the $32.0 million decline in time deposit accounts, which the Company
experienced as a result of time deposit rates offered at slightly lower rates
than other financial institutions operating in the Company's primary market
area.
The Company's net interest margin was 4.27% for the six months ended March 31,
2000, compared to 3.60% for the comparable six month period. The primary factor
was a $92.1 million increase in average earning assets, due primarily to the
Company's initial public offering, as well as the 23 basis point increase in the
average yield on earning assets and the 3 basis point decrease in average cost
of funds. The decrease in average cost of funds was principally caused by the
decrease in the volume of average deposits and the decrease in rates paid on
time deposit accounts, partially offset by the increase in volume of average
borrowings and the increase in the average rates paid on the borrowings. The
increase in the yield on interest earning assets was caused by the investment of
a substantial portion of the offering proceeds in loans, primarily commercial
real estate and commercial business loans, with higher yields than securities or
federal funds and other short term investments.
For more information on average balances, interest, yields and rates, please
refer to Table #1, included in this report.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1.3 million for the six months ended March
31, 2000, a decrease of $287,000, or 17.7% from the comparable period of the
prior year. Net loan charge-offs increased $631,000 for the six month period
ended March 31, 2000 as compared to same period in 1999. However, the provision
for loan losses was reduced in the six months ended March 31, 2000, primarily as
a result of a $2.3 million, or 29.5%, decline in non-performing loans from
September 30, 1999 to March 31, 2000. Non-performing loans currently represent
0.93% of total loans as of March 31, 2000, down from 1.39% at September 30,
1999.
NON-INTEREST INCOME
Non-interest income was $1.8 million for the six months ended March 31, 2000, a
increase of $357,000, or 24.3% from the six months ended March 31, 1999. The
increase was principally due to the receipt of a $382,000 award from the U.S.
Government as a result of originating commercial real estate loans, which
qualified under the U.S. Treasury's Bank Enterprise Award program, as well as
increases in trust service fees and service charges on deposit accounts. The
increase was partially offset by a $257,000 decrease in net gains from mortgage
loan sales due to the substantially lower volume in the 2000 period. Trust
service fees were up $34,000, or 11.1%, as a result of a higher balance of
assets managed than in the comparable period of the prior year. Service charges
on deposit accounts were up $69,000, or 15.6%, compared to the same period of
the prior year.
16
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense for the six months ended March 31, 2000 was $11.3 million,
a decrease of $4.0 million, or 26.0%, from the same period in 1999. The decrease
was principally due to the $4.1 million stock contribution made in the quarter
ended March 31, 1999 to The Troy Savings Bank Community Foundation. Personnel
expense increased by $898,000 during the six months ended March 31, 2000, as
compared to the prior year due to the additional costs in the 2000 period for
the ESOP and the restricted stock awards. Professional fees increased by
$56,000, or 8.5%, for the six months ended March 31, 2000, over the comparable
period of the prior year, primarily due an increase in costs related to
operating as a stock form organization, partially offset by costs for consulting
fees for establishing a profitability measurement system, Y2K technology
evaluations, administrative costs for the ESOP and 401K plans, and
administrative costs to establish the Small Business Investment Company incurred
in the six months ended March 31, 1999. Other real estate owned expense
decreased $456,000, or 73.7%, for the six months ended March 31, 2000, as
compared to the same period in 1999. The decrease in expense was principally due
to a write-down in value of a foreclosed commercial real estate property and
costs related to payment of taxes on other real estate owned which occurred in
the six months ended March 31, 1999. Other expense decreased by $396,000, or
21.1%, for the six months ended March 31, 2000, as compared to the six months
ended March 31, 1999. This decrease was primarily attributable to a $382,000
expense for Year 2000 remediation efforts in the 1999 period, as well as the
write-off of overdraft escrow accounts, and costs related to a direct mail loan
program in the six months ended March 31, 1999, partially offset by increased
costs in the same period of 2000 for cash reserves maintained for Year 2000
liquidity purposes, advertising and marketing costs related to the opening of
the Wynantskill branch, deferred compensation costs for directors, and costs
associated with servicing loans.
INCOME TAX EXPENSE
Income tax expense for the six months ended March 31, 2000, was $1.5 million as
compared to an income tax benefit of $1.6 million for the comparable period in
1999. The increase was primarily caused by the $8.7 million increase in income
before taxes for the six months ended March 31, 2000, as compared to the same
period in the prior year. The difference in income before taxes is primarily
related to the $4.1 million stock contribution to The Troy Savings Bank
Community Foundation made during the six months ended March 31, 1999 and the
increase in net interest income.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to generate cash flows to meet present and future
financial obligations and commitments. Management monitors its liquidity
position on a daily basis to determine that the Company has adequate liquidity
to fund loan commitments, meet daily withdrawal requirements of depositors, and
meet all other daily obligations of the Company.
17
<PAGE>
The primary sources of funds are deposits, borrowings, loan repayments, and
proceeds from the redemption and maturity of federal funds sold and other
short-term securities. The Company's primary cash outflows are new loan
originations, purchases of securities, deposit withdrawals, and common stock
repurchases. The Company monitors the cash outflows and inflows on a daily
basis. Although maturities and scheduled amortization of loans are a predictable
source of funds, deposit outflows, mortgage prepayments and mortgage loan sales
are greatly influenced by changes in interest rates, economic conditions, and
competitors.
The Company attempts to provide stable and flexible sources of funding through
the management of its liabilities, including core deposit products offered
through its branch network, as well as FHLB advances. Management believes that
the level of the Company's liquid assets combined with daily monitoring of cash
inflows and outflows provide adequate liquidity to fund outstanding loan
commitments, meet daily withdrawal requirements of the Company's depositors, and
meet all other daily obligations of the Company.
Consistent with its goals to operate a sound and profitable financial
organization, the Company actively seeks to maintain a "well capitalized"
institution in accordance with regulatory standards. As of March 31, 2000 and
September 30, 1999, total equity was $170.5 million and $180.4 million,
respectively, or 18.7% and 19.7% of total assets at those respective dates. The
reduction in the equity to assets ratio is consistent with the Company's
strategy to manage its capital through asset growth, dividend payments, as
reflected by the $.05 per share cash dividend paid during each of the quarters
ended December 31, 1999 and March 31, 2000, as well as a share repurchase
program. The Company has repurchased 1,092,511 shares of common stock, or all
9.0% of the first approved stock repurchase program, in the six month period
ended March 31, 2000. The Company utilized 446,165 of these shares for awards of
restricted stock under the Company's Long-Term Equity Compensation Plan. In
addition, 87,900 shares were purchased by the Company through a deferred
compensation plan maintained for directors. The cost basis of these shares is
included in treasury stock.
The following is a summary of the Company's and the Bank's actual capital
amounts and ratios at March 31, 2000, compared to the FDIC minimum capital
requirements:
<TABLE>
<CAPTION>
Actual Ratio requirements
---------------------------------------------------------------------------------------
Minimum Classification
Capital as Well
Amount % Adaquecy Capitalized
------ - -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Leverage (Tier I) Capital:
Bank $126,155 14.74% 4.00% 5.00%
Consolidated $171,218 20.01% 4.00% 5.00%
Tier 1 Risk-based Capital:
Bank $126,155 18.90% 4.00% 6.00%
Consolidated $171,218 26.10% 4.00% 6.00%
Total Risk-Based Capital:
Bank 134,498 20.15% 8.00% 10.00%
Consolidated 179,419 27.35% 8.00% 10.00%
</TABLE>
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q or other filings by the Company with the Securities
and Exchange Commission, in the Company's press releases or other public or
shareholder communications, or in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project",
"believe", or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. In addition, certain
18
<PAGE>
disclosures and information customarily provided by financial institutions, such
as analysis of the adequacy of the allowance for loan losses or an analysis of
the interest rate sensitivity of the Company's assets and liabilities, are
inherently based upon predictions of future events and circumstances.
Furthermore, from time to time, the Company may publish other forward-looking
statements relating to such matters as anticipated financial performance,
business prospects, and similar matters.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.
Some of the risks and uncertainties that may affect the operations, performance,
development and results of the Company's business, the interest rate sensitivity
of its assets and liabilities, and the adequacy of its allowance for loan
losses, include but are not limited to the following:
o Deterioration in local, regional, national or global economic
conditions which could result, among other things, in an increase in
loan delinquencies, a decrease in property values, or a change in the
housing turnover rate;
o the effect of certain customers and vendors of critical systems or
services failing to adequately address issues relating becoming Year
2000 compliant;
o changes in market interest rates or changes in the speed at which
market interest rates change;
o changes in laws and regulations affecting the financial service
industry;
o changes in competition; and
o changes in consumer preferences.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including those described above, could affect the
Company's financial performance and could cause the Company's actual results or
circumstances for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release any revisions to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk is the most significant market risk affecting the Company.
Other types of
19
<PAGE>
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.
Interest rate risk can be defined as an exposure to a movement in interest rates
that could have an adverse effect on the Company's net interest income. Interest
rate risk arises naturally from the imbalance in repricing, maturity and/or cash
flow characteristics of assets and liabilities. When interest bearing
liabilities mature or reprice on a different basis than interest earning assets
in a given period, a significant increase in market rates of interest could
adversely effect net interest income. Similarly, when interest earning assets
mature or reprice more quickly than interest bearing liabilities, a significant
decline in market rates of interest could decrease net interest income.
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. Management's asset liability
management committee ("ALCO") meets at least monthly to review consolidated
balance sheet structure, formulate strategy in light of expected economic
conditions and review performance against guidelines established to control
exposure to the various types of inherent risk, and reports the interest rate
risk position to the Board of Directors on a quarterly basis. ALCO also
evaluates the overall risk profile and determines actions to maintain and
achieve a posture consistent with policy guidelines. The Company cannot predict
the future movement of interest rates, and such movement could have an adverse
impact on the Company's consolidated financial condition and results of
operations.
The Company, in order to manage its exposure to interest rate risk, has
emphasized the origination of adjustable rate residential mortgage, commercial
real estate, commercial business and consumer loans; sells substantially all of
its fixed rate residential mortgage loans in the secondary market, although
recently the Company is holding its 15-year fixed rate residential mortgage
loans in portfolio; utilizes FHLB advances to better structure the maturities of
its interest rate sensitive liabilities; and invests in short-term securities
which generally bear lower yields, compared to longer-term investments, but
which better position the Company for increases in interest rates.
In order to reduce the interest rate risk associated with the portfolio of
conventional mortgage loans held for sale, as well as outstanding loan
commitments and uncommitted loan applications with rate lock agreements which
are intended to be held for sale, the Company enters into agreements to sell
loans in the secondary market to unrelated investors on a loan-by-loan basis,
and may also enter into option agreements. There have been no significant
changes in the Company's interest rate sensitivity since September 30, 1999.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of shareholders on February 10,
2000. At the meeting a proposal to elect Directors Daniel J. Hogarty, Jr.,Willie
A. Hammett, and Thomas B. Healy for three year terms was approved. The votes
cast for this proposal and the number of abstentions with respect to the
proposal, were as follows:
Election of Directors:
For Abstentions
Daniel J. Hogarty, Jr. 10,367,732 184,789
Willie A. Hammett 10,375,918 176,603
Thomas B. Healy 10,375,320 177,201
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on 8-K.
There was one report on Form 8-K filed during the
quarter ended March 31, 2000:
On February 29, 2000 Troy Financial Corporation
reported that it had announced a press release
regarding a stock repurchase program. No financial
reports were filed.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TROY FINANCIAL CORPORATION
(Registrant)
Date: May 15, 2000 /s/ Daniel J. Hogarty, Jr.
--------------------------
Daniel J. Hogarty, Jr.
Chairman of the Board, President and
Chief Executive Officer
/s/ Edward M. Maziejka, Jr.
---------------------------
Edward M. Maziejka, Jr.
Vice President and Chief Financial Officer
II-2
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001075046
<NAME> TROY FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US-DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.00
<CASH> 19,241
<INT-BEARING-DEPOSITS> 312
<FED-FUNDS-SOLD> 9,391
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 249,603
<INVESTMENTS-CARRYING> 2,442
<INVESTMENTS-MARKET> 2,423
<LOANS> 584,946
<ALLOWANCE> 11,305
<TOTAL-ASSETS> 910,095
<DEPOSITS> 560,710
<SHORT-TERM> 106,442
<LIABILITIES-OTHER> 19,181
<LONG-TERM> 53,266
0
0
<COMMON> 1
<OTHER-SE> 117,804
<TOTAL-LIABILITIES-AND-EQUITY> 910,095
<INTEREST-LOAN> 22,629
<INTEREST-INVEST> 5,400
<INTEREST-OTHER> 355
<INTEREST-TOTAL> 28,384
<INTEREST-DEPOSIT> 9,215
<INTEREST-EXPENSE> 12,165
<INTEREST-INCOME-NET> 16,219
<LOAN-LOSSES> 1,338
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 11,287
<INCOME-PRETAX> 5,420
<INCOME-PRE-EXTRAORDINARY> 5,420
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,949
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 7.32
<LOANS-NON> 5,502
<LOANS-PAST> 0
<LOANS-TROUBLED> 56
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,764
<CHARGE-OFFS> 1,208
<RECOVERIES> 411
<ALLOWANCE-CLOSE> 11,305
<ALLOWANCE-DOMESTIC> 11,305
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 848
</TABLE>
