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: JUNE 30, 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 AUGUST 10,
2000: 10,763,675 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, June 30,
2000 (unaudited) and September 30, 1999 ............................................................. 1
Consolidated Statements of Income, Three and Nine
Months Ended June 30, 2000 and 1999
(unaudited) ......................................................................................... 2
Consolidated Statements of Cash Flows, Nine Months
Ended June 30, 2000 and 1999
(unaudited) ......................................................................................... 3
Consolidated Statements of Changes in
Shareholders' Equity, Nine Months Ended
June 30, 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 ............................................................. 8
Item 3: Quantitative and Qualitative Disclosures About Market Risk ....................................................
PART II - OTHER INFORMATION
Items 1-6 .............................................................................................. II-1
Signature page ......................................................................................... II-2
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TROY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
------------- ------------------
ASSETS (in thousands, except share data)
------
( Unaudited )
<S> <C> <C>
Cash & due from banks $ 19,037 $ 35,885
Federal funds sold 4,600 50
--------- ---------
Total cash and cash equivalents 23,637 35,935
Loans held for sale 1,724 4,064
Securities available for sale, at fair value 243,642 280,871
Investment securities held to maturity ( fair value of $2,329 and $2,582
at June 30, 2000 and September 30, 1999, respectively) 2,348 2,534
Net loans receivable 591,199 556,142
Accrued interest receivable 5,246 5,270
Other real estate owned 1,225 1,845
Premises & equipment, net 15,282 15,049
Other assets 18,541 13,386
--------- ---------
Total assets $ 902,844 $ 915,096
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Savings accounts 181,804 191,968
Money market accounts 25,039 20,348
N.O.W. and demand accounts 137,425 123,345
Time accounts 216,460 227,712
--------- ---------
Total deposits 560,728 563,373
Mortgagors' escrow accounts 4,568 1,596
Securities sold under agreements to repurchase 81,006 3,736
Short-term borrowings 20,000 100,700
Long-term debt 53,147 44,497
Accrued interest payable 730 487
Official bank checks 3,621 9,651
Contributions payable 2,828 2,664
Other liabilities and accrued expenses 9,848 7,953
--------- ---------
Total liabilities 736,476 734,657
--------- ---------
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 June 30, 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 (4,101) --
Treasury stock, at cost (14,306) --
Retained earnings, substantially restricted 76,949 72,699
Accumulated other comprehensive loss (952) (400)
--------- ---------
Total shareholders' equity 166,368 180,439
--------- ---------
Total liabilities and shareholders' equity $ 902,844 $ 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 For the
three months ended nine months ended
June 30, June 30,
--------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 11,683 $10,063 $ 34,312 $ 29,225
Securities available for sale:
Taxable 1,704 1,343 5,556 4,811
Tax exempt 767 609 2,216 1,653
-------- ------- -------- --------
2,471 1,952 7,772 6,464
-------- ------- -------- --------
Investment securities held to maturity 48 54 147 172
Federal funds sold 178 1,277 533 1,947
-------- ------- -------- --------
Total interest and dividend income 14,380 13,346 42,764 37,808
-------- ------- -------- --------
Interest expense:
Deposits and escrow accounts 4,694 4,837 13,909 15,654
Short-term borrowings 471 94 2,086 290
Long-term debt 800 649 2,135 1,944
-------- ------- -------- --------
Total interest expense 5,965 5,580 18,130 17,888
-------- ------- -------- --------
Net interest income 8,415 7,766 24,634 19,920
Provision for loan losses 469 812 1,807 2,437
-------- ------- -------- --------
Net interest income after provision for loan losses 7,946 6,954 22,827 17,483
-------- ------- -------- --------
Non-interest income:
Service charges on deposits 281 224 792 666
Loan servicing fees 127 166 383 398
Trust service fees 191 176 530 481
Net (losses) gains from securities transactions (120) 5 (115) 14
Net gains (losses) from mortgage loan sales 19 48 (54) 232
Other income 296 161 1,084 458
-------- ------- -------- --------
Total non-interest income 794 780 2,620 2,249
-------- ------- -------- --------
Non-interest expense:
Compensation and employee benefits 3,238 2,740 9,404 8,008
Occupancy 509 521 1,506 1,548
Furniture, fixtures and equipment 207 174 618 552
Computer charges 410 352 1,227 1,093
Professional, legal and other fees 335 316 1,047 972
Printing, postage and telephone 272 171 720 491
Other real estate owned (272) 63 (109) 682
Contributions 57 20 145 4,389
Other 680 543 2,165 2,424
-------- ------- -------- --------
Total non-interest expense 5,436 4,900 16,723 20,159
-------- ------- -------- --------
Income (loss) before income tax expense (benefit) 3,304 2,834 8,724 (427)
Income tax expense (benefit) 1,005 874 2,476 (741)
-------- ------- -------- --------
Net income $ 2,299 $ 1,960 $ 6,248 $ 314
======== ======= ======== ========
Earnings per share:
Basic $ 0.23 $ 0.16 $ 0.61 $ 0.16
Diluted $ 0.23 $ 0.16 $ 0.61 $ 0.16
Earnings per share for the nine months ended June 30, 1999
only includes net income subsequent to the initial
public offering on March 31, 1999
</TABLE>
2
<PAGE>
TROY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
( UNAUDITED )
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
(in thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,248 314
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 931 985
Provision for loan losses 1,807 2,437
Non-cash contribution expense -- 4,084
Amortization of restricted stock awards 723 --
ESOP shares released for allocation 638 --
Net accretion of discount on securities (1,024) (2,366)
Net losses (gains) from securities transactions 115 (14)
Net losses (gains) from mortgage loan sales 54 (232)
Net loss on sale of other real estate owned 4 39
Write down of other real estate owned 379 221
Proceeds from sales of loans held for sale 10,703 50,963
Net loans made to customers and held for sale (8,417) (45,721)
Decrease (increase) in accrued interest receivable 24 (31)
Increase in other assets (4,787) (2,951)
Increase in accrued interest payable 243 144
Decrease in official bank checks, contributions payable, and
other liabilities and accrued expenses (3,971) 142
--------- --------
Net cash provided by operating activities 3,670 8,014
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 34,405 8,611
Proceeds from maturities and redemptions of securities available for sale 351,087 464,222
Purchases of securities available for sale (348,274) (536,032)
Proceeds from maturities and redemptions of investment securities
held to maturity 186 869
Proceeds from sales of other real estate owned 4,061 607
Net loans made to customers (40,688) (62,642)
Purchases of premises and equipment (1,164) (2,108)
--------- --------
Net cash used in investing activities (387) (126,473)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (2,645) (8,439)
Net increase in mortgagors' escrow accounts 2,972 2,700
Net increase (decrease) in securities sold under agreements to repurchase 77,270 (157)
Net decrease in short-term borrowings (80,700) --
Proceeds from issuance of long-term debt 9,000 30,700
Payments on long-term debt (350) (330)
Dividends paid (1,863) --
Purchase of treasury stock (19,265) --
Net proceeds from stock offering -- 113,676
--------- --------
Acquisition of common stock by ESOP -- (9,620)
--------- --------
Net cash (used in) provided by financing activities (15,581) 128,530
--------- --------
Net (decrease) increase in cash and cash equivalents (12,298) 10,071
Cash and cash equivalents at beginning of period 35,935 17,915
--------- --------
Cash and cash equivalents at end of period $ 23,637 27,986
========= ========
SUPPLEMENTAL INFORMATION 0
CASH PAID FOR:
Interest on deposits and borrowings $ 17,887 17,744
Income taxes 2,345 699
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Net reduction in loans resulting from the transfer to other real estate owned 3,824 369
Adjustment of securities available for sale to fair value, net of tax (552) (516)
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 nine months ended
June 30, June 30,
(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
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
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) $ --
Aquisition of 971,121 shares of common
stock by ESOP -- (9,620)
ESOP shares released for allocation 593
------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ (9,027) $ (9,620)
------------------------------------------------------------------------------------------------------------------------------------
UNVESTED RESTRICTED STOCK AWARDS
Balance at beginning of period $ -- $ --
Grant of restricted stock awards (446,165
shares) (4,824) --
Amortization of restricted stock awards 723 --
------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ (4,101) $ --
------------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance at beginning of period $ -- $ --
Purchase of treasury stock (1,815,411
shares) (19,265) --
Grant of restricted stock awards (446,165
shares) 4,959 --
------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ (14,306) $ --
------------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period $ 72,699 $ 70,622
Net income 6,248 $ 6,248 314 $ 314
Cash dividends ($0.16 per share) (1,863) --
Adjustment for grant of restricted stock
awards (135) --
------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 76,949 $ 70,936
------------------------------------------------------------------------------------------------------------------------------------
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 ($1,035) and ($847)) (621) (508)
Reclassification adjustment for net losses (gains)
on securities available for sale realized in net
income (pre-tax $115 and ($14) 69 (8)
------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss $ (552) (552) $ (516) (516)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 5,696 $ (202)
--------------------------------------------------------------------------------=========--------------------------=========--------
Balance at end of period $ (952) $ (109)
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity at June 30 $ 166,368 $ 178,967
====================================================================================================================================
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS.
</TABLE>
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 per share
calculations. During the three and nine months ended June 30, 2000, options to
purchase 1,015,617 shares of common stock at an average exercise price of
$10.813 were outstanding, but were not included in the computation of diluted
earnings per share, as the effect was antidilutive. The options, which expire on
October 1, 2009, were still outstanding at June 30, 2000.
5
<PAGE>
The following table sets forth certain information regarding the calculation of
basic and diluted earnings per share for the three month and nine month periods
ended June 30, 1999 and 2000:
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
2000 1999
---- ----
(in thousands, except share and per share data)
-----------------------------------------------
<S> <C> <C>
Net income $ 2,299 $ 1,960
=========== ===========
Weighted average shares outstanding 9,964,137 11,888,314
Dilutive effect of potential common shares
related to stock compensation plans 37,358 --
----------- -----------
Weighted average shares outstanding including
potential dilution 10,001,495 11,888,314
=========== ===========
Basic earnings per share $ 0.23 $ 0.16
Diluted earnings per share $ 0.23 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended June 30,
2000 1999
---- ----
(in thousands, except share and per share data)
-----------------------------------------------
<S> <C> <C>
Net income $ 6,248 $ 1,960
=========== ===========
Weighted average shares outstanding 10,253,065 11,888,314
Dilutive effect of potential common shares
related to stock compensation plans 17,930 --
----------- -----------
Weighted average shares outstanding including
potential dilution 10,270,995 11,888,314
=========== ===========
Basic earnings per share $ 0.61 $ 0.16
Diluted earnings per share $ 0.61 $ 0.16
</TABLE>
Earnings per share for the nine months ended June 30, 1999 only includes net
income subsequent to the initial public offering on March 31, 1999.
6
<PAGE>
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. Pending Acquisition of Catskill Financial Corporation
On June 8, 2000, the Company announced it had signed a definitive agreement by
which the Company will acquire all of the outstanding shares of Catskill
Financial Corporation ("Catskill") in a cash transaction for $23.00 per share,
for a total transaction value of approximately $90.0 million. Catskill is the
holding company of Catskill Savings Bank, a $346.1 million asset, seven office
savings bank headquartered in Catskill, New York. In the acquisition, the
Company will merge Catskill Savings Bank into The Troy Savings Bank. The
transaction is subject to Catskill shareholder and regulatory approvals and is
expected to close by the end of 2000. The transaction will be accounted for
under the purchase method of accounting.
Note 5. 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.
7
<PAGE>
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
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.
8
<PAGE>
NEW COMMERCIAL BANK
Subsequent to quarter-end, in August 2000 the Company established a new
commercial bank subsidiary, The Troy Commercial Bank, and provided capital of
$10.0 million.
MERGER AND ACQUISITION ACTIVITY
On June 8, 2000, the Company announced it had signed a definitive agreement by
which the Company will acquire all of the outstanding shares of Catskill
Financial Corporation ("Catskill") in a cash transaction for $23.00 per share,
for a total transaction value of approximately $90.0 million. Catskill is the
holding company of Catskill Savings Bank, a $346.1 million asset, seven office
savings bank headquartered in Catskill, New York. In the acquisition, the
Company will merge Catskill Savings Bank into The Troy Savings Bank, creating a
regional bank with pro forma total assets in excess of $1.2 billion, deposits of
$782.3 million and 21 full-service offices located in eight New York counties
throughout New York State's Capital and Catskill regions.
The transaction is subject to Catskill shareholder and regulatory approvals and
is expected to close by the end of 2000. The transaction will be accounted for
under the purchase method of accounting. The Company expects that the
transaction to be accretive to its earnings by the end of the first full year of
the combined operations.
FINANCIAL CONDITION
The Company's total assets were $902.8 million at June 30, 2000, a decrease of
$12.3 million, or 1.3% from the $915.1 million at September 30, 1999. Cash and
cash equivalents were $23.6 million at June 30, 2000, a decrease of $12.3
million from the $35.9 million at September 30, 1999. The decrease was
principally due to a $16.8 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 $4.6 million increase in federal funds
sold.
The Bank's securities available for sale portfolio was $243.6 million at June
30, 2000, a decrease of $37.2 million, or 13.3% 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 common stock . Total loans receivable were
$602.8 million as of June 30, 2000, an increase of $35.9 million or 6.3% 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>
June 30, September 30,
2000 1999
-------------------------- ---------------------------
% of loans % of loans
-------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Residential mortgage $ 227,351 37.7% $221,721 39.1%
Commercial 229,055 38.0% 216,700 38.2%
Construction 15,246 2.5% 13,761 2.4%
--------- ----- -------- -----
Total real estate loans 471,652 78.2% 452,182 79.7%
--------- ----- -------- -----
Commercial business loans 86,041 14.3% 66,274 11.7%
--------- ----- -------- -----
Consumer loans:
Home equity lines of credit 5,299 0.9% 6,776 1.2%
Other consumer 40,185 6.6% 42,081 7.4%
--------- ----- -------- -----
Total consumer loans 45,484 7.5% 48,857 8.6%
--------- ----- -------- -----
Gross loans 603,177 100.0% 567,313 100.0%
===== =====
Net deferred loan fees and costs and unearned discount (335) (407)
--------- --------
Total loans $ 602,842 $566,906
========= ========
</TABLE>
9
<PAGE>
Commercial real estate loans increased $12.4 million to $229.1 million at June
30, 2000 or 38.0% of total loans, from $216.7 million at September 30, 1999, or
38.2% of total loans. Commercial business loans increased $19.8 million to $86.0
million or 14.3% of total loans at June 30, 2000, up from $66.3 million or 11.7%
of total loans at September 30, 1999. Construction loans increased $1.5 million
to $15.2 million or 2.5% of total loans at June 30, 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 $5.6 million to $227.4 million, or 37.7% of total loans, at June 30,
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 $7.4 million, or .82% of total assets at June 30,
2000. The table below sets forth the amounts and categories of the Company's
non-performing assets.
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------------------------------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Real estate loans:
Residential mortgage $ 2,441 $ 2,707
Commercial mortgage 3,353 4,210
Construction -- --
------- -------
Total real estate loans 5,794 6,917
Commercial business loans 100 10
Home equity lines of credit 92 58
Other consumer loans 165 282
------- -------
Total non-accrual loans 6,151 7,267
Troubled debt restructurings 54 616
------- -------
Total non-performing loans $ 6,205 $ 7,883
======= =======
Other real estate owned :
Residential real estate 252 76
Commercial real estate 973 1,769
------- -------
Total other real estate owned $ 1,225 $ 1,845
======= =======
Total non-performing assets $ 7,430 $ 9,728
======= =======
Allowance for loan losses $11,643 $10,764
======= =======
Allowance for loan losses as a percentage of
non-performing loans 187.64% 136.55%
Non-performing loans as a percentage of
total loans 1.03% 1.39%
Non-performing assets as a percentage of
total assets 0.82% 1.06%
</TABLE>
10
<PAGE>
The $1.7 million decrease in non-performing loans at June 30, 2000 as compared
to September 30, 1999 was attributable primarily to the repayment of three
commercial real estate loans and the foreclosure of another commercial real
estate loan which was transferred to other real estate owned and sold, partially
offset by the addition of four other commercial real estate loans. Other real
estate owned decreased by $620,000, principally from a decrease of $796,000 from
the sale of a commercial real estate property in the quarter ended June 30,
2000, partially offset by an increase of $176,000 in foreclosed residential real
estate. The following table summarizes the activity in other real estate owned
for the periods presented:
<TABLE>
<CAPTION>
Nine months ended June 30,
2000 1999
----------- -----------
(In thousands)
<S> <C> <C>
Balance at the beginning of the period $ 1,845 $ 1,872
Loans transferred to other real estate 3,824 369
Sale of other real estate (4,065) (646)
Write down of other real estate (379) (221)
----------- -----------
Balance at the end of the period $ 1,225 $ 1,374
=========== ===========
</TABLE>
11
<PAGE>
The allowance for loan losses was $11.6 million, or 1.93% of period end loans at
June 30, 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 187.64% at June 30, 2000, as compared to 136.55% as of
September 30, 1999. There were no loans past due 90 days and still accruing at
June 30, 2000 or September 30, 1999. The following table summarizes the activity
in the allowance for loan losses:
<TABLE>
<CAPTION>
Nine months ended June 30,
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Allowance at the beginning of the period $ 10,764 $ 8,260
Charge-offs (1,392) (651)
Recoveries 464 204
-------- --------
Net charge-offs (928) (447)
Provision for loan losses 1,807 2,437
-------- --------
Allowance at end of the period $ 11,643 $ 10,250
======== ========
</TABLE>
Total deposits were $560.7 million at June 30, 2000, a decrease of $2.6 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>
June 30, 2000 September 30, 1999
------------- ------------------
(In Thousands) % of Deposits (In Thousands) % of Deposits
<S> <C> <C> <C> <C>
Savings accounts $181,804 32.4% $191,968 34.1%
Time accounts 216,460 38.6% 227,712 40.4%
Money market accounts 25,039 4.5% 20,348 3.6%
NOW & Super NOW accounts 91,251 16.3% 86,305 15.3%
Demand accounts 46,174 8.2% 37,040 6.6%
-------- ----- -------- -----
$560,728 100.0% $563,373 100.0%
======== ===== ======== =====
</TABLE>
12
<PAGE>
The $2.6 million decrease in deposits from September 30, 1999 is primarily
attributable to an $11.3 million decrease in time deposits, a $10.2 million
decrease in savings deposits, partially offset by a $14.1 million increase in
demand deposits and a $4.7 million increase in money market accounts. The
decline in time deposit accounts is attributable to the lower rates paid by the
Company in the quarters ended December 31, 1999 and 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 its core deposits. The
Company has recently received approval from the New York State Banking
Department to operate its commercial bank subsidiary through which the Company
intends to generate additional funding through the acceptance of municipal
deposits. It is anticipated that the commercial bank will begin accepting
deposits sometime in the fourth fiscal quarter ending September 30, 2000.
The Company increased its borrowings with the FHLB to $153.1 million at June 30,
2000, an increase of $7.9 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 repurchase shares of the Company's common stock.
Shareholders' equity at June 30, 2000 was $166.4 million, a decrease of $14.1
million or 7.8% from the $180.4 million at September 30, 1999. The decrease was
principally attributable to the repurchase of 1.8 million shares of common
stock. The Company utilized 445,561 of the shares purchased for awards of
restricted stock under the Long-Term Equity Compensation Plan. Shareholders'
equity was increased by the Company's $6.2 million of net income, partially
offset by the $1.9 million of cash dividends paid in the nine months ended June
30, 2000 and the $552,000 increase in accumulated other comprehensive loss.
Shareholders' equity was also increased by $593,000 for the ESOP shares
allocated as of December 31, 1999.
Shareholders' equity as a percentage of total assets was 18.43% at June 30, 2000
compared to 19.72% at September 30, 1999.
13
<PAGE>
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
$423,000 in the three month period ended June 30, 2000, and $329,000 for the
comparable three month period in 1999. 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 June 30,
--------------------------------------------------------------
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 $601,206 $11,700 7.78% $510,722 $10,031 7.86%
Loans held for sale 1,438 32 8.90% 4,212 71 6.74%
Investment securities held to maturity 2,406 48 7.98% 2,675 54 8.07%
Securities available for sale:
Taxable 96,239 1,704 7.08% 100,389 1,343 5.35%
Tax-exempt 71,528 1,141 6.38% 62,306 899 5.77%
-------- ------- -------- -------
Total securities available for sale 167,767 2,845 6.78% 162,695 2,242 5.51%
Federal funds sold and other short-term investments 12,265 178 5.81% 106,718 1,277 4.79%
-------- ------- -------- -------
Total interest-earning assets 785,082 14,803 7.54% 787,022 13,675 6.95%
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and Super NOW accounts 88,197 483 2.19% 80,748 438 2.17%
Money market accounts 21,819 174 3.19% 18,571 136 2.93%
Savings accounts 183,205 1,296 2.83% 192,109 1,309 2.73%
Time deposit accounts 215,903 2,722 5.04% 239,353 2,893 4.83%
Conversion funds in escrow -- -- -- 6,130 43 2.81%
Escrow accounts 3,789 19 2.01% 3,693 18 1.95%
-------- ------- -------- -------
Total interest-bearing deposits 512,913 4,694 3.66% 540,604 4,837 3.58%
Borrowings:
Securities sold under agreements to repurchase 9,511 130 5.47% 2,780 22 3.17%
Short-term borrowings 20,417 341 6.68% 5,785 72 4.98%
Long-term debt 54,077 800 5.92% 44,863 649 5.79%
-------- ------- -------- -------
Total borrowings 84,005 1,271 6.05% 53,428 743 5.56%
-------- ------- -------- -------
Total interest-bearing liabilities 596,918 5,965 4.00% 594,032 5,580 3.76%
Net interest spread 3.54% 3.19%
Net interest income / net interest margin 8,838 4.50% 8,095 4.11%
Ratio of interest-earning assets to
interest-bearing liabilities 131.52% 132.49%
Tax equivalent adjustment 423 329
------- -------
Net interest income as per consolidated financial statements $8,415 $7,766
======= =======
</TABLE>
14
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND
1999
GENERAL
For the three months ended June 30, 2000, the Company recorded net income of
$2.3 million, an increase of $339,000 as compared to a net income of $2.0
million for the three month period ended June 30, 1999. The increase was
principally the result of higher net interest income, a reduction in the
provision for loan losses, and slightly higher non-interest income, which was
partially offset by higher non-interest expenses and higher income tax expense.
The Company's diluted earnings per share were $0.23 for the three months ended
June 30, 2000, as compared to $0.16 for the three months ended June 30, 1999.
Annualized return on average assets for the three months ended June 30, 2000 and
1999, was 1.11% and .95%, respectively, and the Company's annualized return on
average equity was 5.44% and 4.33%, respectively.
NET INTEREST INCOME
Net interest income on a tax equivalent basis for the three months ended June
30, 2000, was $8.8 million, an increase of $743,000, or 9.2%, when compared to
the three months ended June 30, 1999. The increase was primarily attributable to
a 59 basis point increase in the yield on average earning assets, which was
partially offset by the 24 basis point increase in the average cost of funds.
Net interest income was negatively impacted by the $1.9 million decrease in
average earning assets and the $2.9 million increase in average interest bearing
liabilities. The decrease in average earning assets was the result of a $94.5
million decrease in average federal funds sold and a $2.8 million decrease in
average loans held for sale, partially offset by a $90.5 million increase in
average loans. The increase in average interest bearing liabilities was the
result of an increase in average borrowings of $30.6 million, partially offset
by a decrease in average deposits
15
<PAGE>
of $27.7 million, primarily the result of a $23.5 million decrease in time
deposit accounts, an $8.9 million decrease in savings accounts, and a $6.1
million decrease in conversion funds held in escrow, partially offset by a $7.4
million increase in interest-bearing checking and a $3.2 million increase in
money market accounts.
Interest and dividend income for the three months ended June 30, 2000 was $14.8
million on a tax equivalent basis, an increase of $1.1 million, or 8.2%, over
the prior year. The increase was principally due to the 59 basis point increase
in the yield on average earning assets, partially offset by the decrease in
volume of average earning assets.
The average yield on taxable available for sale securities increased by 173
basis points for the three months ended June 30, 2000, compared to the same
period in 1999, which more than offset the $4.2 million decrease in average
balance of taxable 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 June
30, 2000 was 6.38%, 61 basis points higher than the yield for the same period in
1999, and 57 basis points higher than the average yield on federal funds sold
and other short-term investments for the three months ended June 30, 2000. The
average loan yield for the three months ended June 30, 2000 was 7.78%, down 8
basis points from the same period in the previous year, but was 100 basis points
more than the 6.78% average yield on available for sale securities.
Interest expense for the three months ended June 30, 2000, was $6.0 million, an
increase of $385,000, or 6.9% over the three month period ended June 30, 1999.
The change was primarily the result of a 24 basis point increase in the average
cost of funds and the increase in average volume of interest bearing
liabilities. The average balance of interest bearing liabilities was $596.9
million for the three months ended June 30, 2000, an increase of $2.9 million,
or .5%, from the prior year's comparable period. The average balance of
borrowings was $84.0 million for the three months ended June 30, 2000, as
compared to $53.4 million in the comparable three month period last year. The
increase in short-term borrowings partially offset the $30.6 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. However, the Company is
currently pricing its time deposits more competitively in order to retain its
core deposits.
The Company's net interest margin was 4.50% for the three months ended June 30,
2000, compared to 4.11% for the comparable three month period. The primary
factor was the 59 basis point increase in the yield on average earning assets,
partially offset by the 24 basis point increase in the average 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, as well as an increase on rates paid on average deposits, partially
offset by the decrease in the volume of average deposits. The increase in the
yield on interest earning assets was caused by the redeployment of a substantial
portion of the proceeds from the Company's initial public offering in loans,
primarily commercial real estate and commercial business loans, with higher
yields than securities or federal funds and other short-term investments.
16
<PAGE>
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 $469,000 for the three months ended June 30,
2000, a decrease of $343,000, or 42.2%, from the provision of $812,000 for the
comparable period of the prior year. The allowance for loan losses was $11.6
million, or 1.93% of period end loans at June 30, 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 187.64% at June 30, 2000
as compared to 136.55% at September 30, 1999. Non-performing loans were $6.2
million, or 1.03% of total loans at June 30, 2000, compared to $7.9 million, or
1.39% of total loans at September 30, 1999. The provision for loan losses was
reduced in the quarter ended June 30, 2000, primarily as a result of the $2.2
million decline in non-performing loans, or 26.6%, as compared to the quarter
ended June 30, 1999, offset by continued loan growth in commercial real estate
and commercial business loans. Non-performing loans represent 1.03% of total
loans as of June 30, 2000, down from 1.39% at September 30, 1999, and 1.60% at
June 30, 1999.
Commercial real estate loans and commercial business loans represent 52.3% of
the total loan portfolio at June 30, 2000 compared to 49.9% at September 30,
1999.
NON-INTEREST INCOME
Non-interest income was $794,000 for the three months ended June 30, 2000, an
increase of $14,000, or 1.8% from the three months ended June 30, 1999. The
increase was principally due to the $57,000 increase in service charges on
deposits, primarily from an increase in fees related to checks received during
the quarter ended June 30, 2000 with insufficient funds, a $15,000 increase in
trust service fees, and a $135,000 increase in other non-interest income,
principally from commissions on life insurance, as well as a gain on sale of the
Bank's supermarket branch (no deposits were sold). The increase was partially
offset by a $39,000 decrease in loan servicing fees, as the volume of loans
originated for sale has declined significantly in the quarter ended June 30,
2000, as compared to the same period in 1999, as well as a $125,000 increase in
net losses from securities transactions, a significant portion of which relates
to losses for certain lower yielding securities for which the Company made the
decision to sell in the quarter ended June 30, 2000.
NON-INTEREST EXPENSES
Non-interest expenses for the three months ended June 30, 2000 were $5.4
million, an increase of $536,000, or 10.9%, from the same period in 1999. The
increase was principally due to a $498,000 increase in compensation and employee
benefits due primarily to the additional costs in the 2000 period for the ESOP
and the restricted stock awards. The increase was also attributable to a $58,000
increase in computer charges, primarily due to increases in monthly processing
charges and special programming costs associated with the commercial bank and
the bank holding company, a $101,000 increase in printing and postage expenses,
primarily as a result of the costs of a direct mail program for personal
unsecured loans, and a $137,000 increase in other non-interest expenses,
primarily costs associated with establishing the commercial bank, an increase in
Delaware franchise tax expense, and costs related to the implementation of a
debit card, partially offset by a $335,000 decrease in other real estate owned
expense. The decrease in other real estate owned expense was principally due to
a $320,000 gain on sale of a foreclosed commercial real estate property which
occurred in the quarter ended June 30, 2000.
17
<PAGE>
INCOME TAX EXPENSE
Income tax expense for the three months ended June 30, 2000, was $1.0 million,
as compared to $874,000 for the comparable period in 1999. The increase was
primarily caused by the $470,000 increase in income before taxes for the three
months ended June 30, 2000, as compared to the same period in the prior year.
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 $1.2
million in the nine month period ended June 30, 2000, and $868,000 for the
comparable nine 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 nine months ended June 30,
------------------------------------------------------------------
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 $591,322 $ 34,343 7.74% $492,587 $ 28,963 7.84%
Loans held for sale 2,162 130 8.02% 5,914 341 7.69%
Investment securities held to maturity 2,461 147 7.96% 2,909 172 7.88%
Securities available for sale:
Taxable 113,736 5,556 6.51% 121,543 4,811 5.28%
Tax-exempt 71,240 3,289 6.16% 56,248 2,442 5.79%
-------- -------- -------- --------
Total securities available for sale 184,976 8,845 6.38% 177,791 7,253 5.44%
Federal funds sold and other short-term investments 12,372 533 5.74% 53,315 1,947 4.87%
-------- -------- -------- --------
Total interest-earning assets 793,293 43,998 7.39% 732,516 38,676 7.04%
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and Super NOW accounts 87,085 1,435 2.20% 79,684 1,308 2.19%
Money market accounts 19,814 458 3.08% 18,141 407 2.99%
Savings accounts 186,191 3,960 2.84% 196,847 4,215 2.85%
Time deposit accounts 218,906 8,015 4.88% 248,010 9,433 5.07%
Conversion funds in escrow -- -- -- 12,090 253 2.79%
Escrow accounts 2,975 41 1.84% 2,883 38 1.76%
-------- -------- -------- --------
Total interest-bearing deposits 514,971 13,909 3.60% 557,655 15,654 3.74%
Borrowings:
Securities sold under agreements to repurchase 20,107 854 5.66% 3,519 84 3.18%
Short-term borrowings 27,611 1,232 5.95% 5,747 206 4.78%
Long-term debt 48,505 2,135 5.87% 44,458 1,944 5.83%
-------- -------- -------- --------
Total borrowings 96,223 4,221 5.85% 53,724 2,234 5.54%
-------- -------- -------- --------
Total interest-bearing liabilities 611,194 18,130 3.96% 611,379 17,888 3.90%
Net interest spread 3.43% 3.14%
Net interest income / net interest margin 25,868 4.35% 20,788 3.78%
Ratio of interest-earning assets to
interest-bearing liabilities 129.79% 119.81%
Tax equivalent adjustment 1,234 868
-------- --------
Net interest income as per consolidated financial statements $ 24,634 $ 19,920
======== ========
</TABLE>
18
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
GENERAL
For the nine months ended June 30, 2000, the Company recorded net income of $6.2
million, an increase of $5.9 million, as compared to a net income of $314,000
for the nine month period ended June 30, 1999. The increase was principally the
result of higher net interest income, a reduction in the provision for loan
losses, lower non-interest expenses, 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 $0.61 for the
nine months ended June 30, 2000.
The annualized return on average assets for the nine months ended June 30, 2000
and 1999, was 0.99% and 0.05%, respectively, and the Company's annualized return
on average equity was 4.84% and 0.39%, respectively.
NET INTEREST INCOME
Net interest income on a tax equivalent basis for the nine months ended June 30,
2000, was $25.9 million, an increase of $5.1 million, or 24.4%, when compared to
the nine months ended June 30, 1999. The increase was primarily attributable to
a $60.8 million increase in average interest earning assets funded primarily by
the net proceeds from the Company's initial public offering on March 31, 1999
and to a much lesser extent the $185,000 decrease in average interest bearing
liabilities.
The decrease in average interest bearing liabilities was the result of a
decrease in deposits of $42.7 million, primarily the result of a $29.1 million
decrease in time deposit accounts, a $10.7 million decrease in savings accounts
and a $12.1 million decrease in subscription funds held in escrow, partially
offset by a $7.4 million increase in interest-bearing checking, a $1.7 million
increase in money market accounts, and a $42.5 million increase in borrowings.
Net interest income was also positively affected by the 35 basis point increase
in the yield on average earning assets, partially offset by the 6 basis point
increase in the average cost of funds.
Interest and dividend income for the nine months ended June 30, 2000 was $44.0
million on a tax equivalent basis, an increase of $5.3 million, or 13.8%, over
the prior year's period. The increase was principally due to the increase in the
volume of earning assets as well as the 35 basis point increase in the average
yield on interest earning assets.
The average yield on taxable available for sale securities increased by 123
basis points for the nine months ended June 30, 2000, compared to the same
period in 1999, which more than offset the $7.8 million decrease in average
balance of taxable available for sale securities. The Company has invested on
average for the nine months ended June 30, 2000, approximately $37.8 million in
short-term government agency discount bonds to preserve certain thrift tax
advantages while providing liquidity comparable to federal funds and still
offering a yield slightly higher than the 5.74% average yield for federal funds
sold. The average loan yield for the nine months ended June 30, 2000 was 7.74%,
down 10 basis points from the same period in the previous year, but was 136
basis points more than the 6.38% 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 nine months ended June 30,
19
<PAGE>
2000 was 6.16%, 37 basis points higher than the yield for the same period in
1999, and 42 basis points higher than the average yield on federal funds sold
and other short-term investments for the nine months ended June 30, 2000.
Interest expense for the nine months ended June 30, 2000, was $18.1 million, an
increase of $242,000, or 1.4% over the nine month period ended June 30, 1999.
The increase was principally due to a 6 basis point increase in the average cost
of funds, partially offset by the decrease in average volume of interest bearing
liabilities. The average balance of interest bearing liabilities was $611.2
million for the nine months ended June 30, 2000, a decrease of $185,000, or
0.03%. The average balance of borrowings was $96.2 million for the nine months
ended June 30, 2000, as compared to $53.7 million in the comparable nine month
period. The increase in borrowings more than offset the $29.1 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 4.35% for the nine months ended June 30,
2000, compared to 3.78% for the comparable nine month period. The primary factor
was a $60.8 million increase in average earning assets, due primarily to the
Company's initial public offering on March 31, 1999, as well as the 35 basis
point increase in the average yield on earning assets, partially offset by the 6
basis point increase in average cost of funds. The increase in average 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 provision for loan losses was $1.8 million for the nine months ended June
30, 2000, a decrease of $630,000, or 25.9% from the comparable period of the
prior year. The allowance for loan losses was $11.6 million, or 1.93% of period
end loans at June 30, 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 187.64% at June 30, 2000 as compared to 136.55% at
September 30, 1999. Non-performing loans were $6.2 million, or 1.03% of total
loans at June 30, 2000, compared to $7.9 million, or 1.39% of total loans at
September 30, 1999. Net loan charge-offs increased $481,000 for the nine month
period ended June 30, 2000 as compared to same period in 1999. However, the
provision for loan losses was reduced in the nine months ended June 30, 2000,
primarily as a result of the $1.7 million, or 21.3%, decline in non-performing
loans from September 30, 1999 to June 30, 2000. Non-performing loans represent
1.03% of total loans as of June 30, 2000, down from 1.39% at September 30, 1999.
20
<PAGE>
NON-INTEREST INCOME
Non-interest income was $2.6 million for the nine months ended June 30, 2000, an
increase of $371,000, or 16.5% from the nine months ended June 30, 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 a
$49,000 increase in trust service fees, or 10.2% from the same period of the
prior year, and a $126,000 increase in service charges on deposit accounts, or
18.9%, compared to the same period of the prior year. The increase was partially
offset by a $286,000 decrease in net gains from mortgage loan sales due to the
substantially lower volume in the 2000 period, as well as an increase of
$129,000 in net losses on securities transactions.
NON-INTEREST EXPENSES
Non-interest expenses for the nine months ended June 30, 2000 were $16.7
million, a decrease of $3.4 million, or 17.0%, 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 and
the decrease in other real estate owned expense, partially offset by increases
in compensation and employee benefits, furniture, fixtures and equipment,
computer charges, and professional fees. Compensation and employee benefits
increased by $1.4 million during the nine months ended June 30, 2000, as
compared to the prior year, due primarily to the additional costs in the 2000
period for the ESOP and the restricted stock awards. Furniture, fixtures and
equipment increased by $66,000, or 12.0%, compared to the same period of the
prior year, primarily the result of the additional operating costs related to
the opening of the Wynantskill branch in December 1999. Computer charges
increased by $134,000, primarily due to increased processing charges, as well as
special programming costs associated with the commercial bank and the bank
holding company. Professional fees increased by $75,000, or 7.7%, for the nine
months ended June 30, 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 nine months ended June 30,
1999. Other real estate owned expense decreased $791,000, or 116.0%, for the
nine months ended June 30, 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 nine months ended June 30, 1999, as well
as a $320,000 gain on sale of a foreclosed commercial real estate property
during the nine months ended June 30, 2000. Other expense decreased by $259,000,
or 10.7%, for the nine months ended June 30, 2000, as compared to the nine
months ended June 30, 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, in the nine months ended June 30,
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
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related to the opening of the Wynantskill branch, deferred compensation costs
for directors, costs associated with servicing loans, costs for the
establishment of the commercial bank, and costs related to the implementation of
a debit card.
INCOME TAX EXPENSE
Income tax expense for the nine months ended June 30, 2000, was $2.5 million as
compared to an income tax benefit of $741,000 for the comparable period in 1999.
The increase was primarily caused by the $9.2 million increase in income before
taxes for the nine months ended June 30, 2000, as compared to the same period in
the prior year.
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.
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 June 30, 2000 and
September 30, 1999, total equity was $166.4 million and $180.4 million,
respectively, or 18.4% 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, and the $.06 per share cash dividend
paid during the quarter ended June 30, 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, and 635,000 shares under
its second approved stock repurchase program in the nine month period ended June
30, 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.
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The following is a summary of the Company's and the Bank's actual capital
amounts and ratios at June 30, 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 $128,584 15.30% 4.00% 5.00%
Consolidated $166,707 20.19% 4.00% 5.00%
Tier 1 Risk-based capital:
Bank $128,584 18.67% 4.00% 6.00%
Consolidated $166,707 24.90% 4.00% 6.00%
Total Risk-Based Capital:
Bank $137,194 19.92% 8.00% 10.00%
Consolidated $175,076 26.15% 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 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 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;
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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 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
24
<PAGE>
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.
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
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10. Agreement and Plan of Merger dated as of June 7,
2000 by and among Troy Financial Corporation, Charlie
Acquisition Corporation, and Catskill Financial
Corporation.
27. Financial Data Schedule
(b) Reports on 8-K.
None
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: August 11, 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
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EXHIBIT INDEX
-------------
10. Agreement and Plan of Merger dated as of June 7,
2000 by and among Troy Financial Corporation, Charlie
Acquisition Corporation, and Catskill Financial
Corporation.
27. Financial Data Schedule
