UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number 0-10592
March 31, 2000
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
320 STATE STREET, SCHENECTADY, NEW YORK 12305
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Common
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes.(x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class of Common Stock as of April 30, 2000
--------------------------- ----------------------
$1 Par Value 53,500,334
<PAGE>
Trustco Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
----------------------------------------------------------------------
Item 1. Interim Financial Statements (Unaudited): 1
Consolidated Statements of Income for the
Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Financial Condition 2
as of March 31, 2000 and December 31, 1999
Consolidated Statements of Cash Flows for the 3 - 4
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Interim Financial 5 - 7
Statements
Independent Auditors' Report 8
Item 2. Management's Discussion and Analysis 9 - 16
Item 3. Quantitative and Qualitative Disclosures About 17
Market Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities --None
Item 4. Submissions of Matters to Vote of Security
Holders -- None
Item 5. Other Information -- None
i
<PAGE>
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
On April 18, 2000, TrustCo filed a Current Report on Form 8-K,
regarding two press releases dated April 18, 2000, detailing first
quarter financial results.
ii
<PAGE>
TRUSTCO BANK CORP NY
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
3 Months Ended
March 31
2000 1999
Interest income:
<S> <C> <C>
Interest and fees on loans $ 27,432 26,560
Interest on U. S. Treasuries and agencies 3,924 2,952
Interest on states and political
subdivisions 1,870 1,773
Interest on mortgage-backed securities 3,753 4,079
Other securities 1,678 2,086
Interest on federal funds sold 3,587 4,216
--------------------------------
Total interest income 42,244 41,666
--------------------------------
Interest expense:
Interest on deposits:
Interest-bearing checking 715 676
Savings 4,294 4,397
Money market deposit accounts 401 399
Time deposits 10,645 12,319
Interest on short-term borrowings 1,746 1,448
--------------------------------
Total interest expense 17,801 19,239
--------------------------------
Net interest income 24,443 22,427
Provision for loan losses 850 1,513
--------------------------------
Net interest income after provision
for loan losses 23,593 20,914
--------------------------------
Noninterest income:
Trust department income 2,086 1,871
Fees for other services to customers 2,059 2,132
Net gain/(loss) on securities transactions (1,049) (420)
Other 706 1,837
--------------------------------
Total noninterest income 3,802 5,420
--------------------------------
Noninterest expenses:
Salaries and employee benefits 6,372 6,224
Net occupancy expense 1,185 1,241
Equipment expense 1,215 1,797
FDIC insurance expense 104 63
Professional services 665 594
Other real estate expenses / (income) (44) (88)
Other 2,425 2,371
--------------------------------
Total noninterest expenses 11,922 12,202
--------------------------------
Income before taxes 15,473 14,132
Applicable income taxes 5,203 4,809
--------------------------------
Net income $ 10,270 9,323
================================
Net income per Common Share:
- Basic $ 0.192 0.173
================================
- Diluted $ 0.186 0.167
================================
Per share data is adjusted for the effect of the 2 for 1 stock split declared August, 1999.
</TABLE>
See accompanying notes to consolidated interim financial statements.
1
<PAGE>
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
03/31/00 12/31/99
ASSETS:
<S> <C> <C>
Cash and due from banks $ 35,308 54,542
Federal funds sold 258,000 266,000
Other short-term funds 7,783 9,970
------------------ -----------------
Total cash and cash equivalents 301,091 330,512
Securities available for sale:
U. S. Treasuries and agencies 201,056 185,978
States and political subdivisions 140,445 132,560
Mortgage-backed securities 200,431 205,558
Other 111,661 116,734
------------------ -----------------
Total securities available for sale 653,593 640,830
------------------ -----------------
Loans:
Commercial 191,673 193,960
Residential mortgage loans 1,005,707 995,578
Home equity line of credit 136,727 138,339
Installment loans 21,261 22,891
------------------ -----------------
Total loans 1,355,368 1,350,768
------------------ -----------------
Less:
Allowance for loan losses 55,666 55,820
Unearned income 878 959
------------------ -----------------
Net loans 1,298,824 1,293,989
Bank premises and equipment 16,223 16,209
Real estate owned 1,600 1,771
Other assets 82,322 80,711
------------------ -----------------
Total assets $ 2,353,653 2,364,022
================== =================
LIABILITIES:
Deposits:
Demand $ 163,730 155,313
Interest-bearing checking 273,283 272,384
Savings accounts 641,036 641,650
Money market deposit accounts 56,437 58,557
Certificates of deposit (in denominations of
$100,000 or more) 121,028 115,636
Time deposits 735,544 751,369
------------------ -----------------
Total deposits 1,991,058 1,994,909
Short-term borrowings 145,034 152,782
Accrued expenses and other liabilities 47,017 49,975
------------------ -----------------
Total liabilities 2,183,109 2,197,666
------------------ -----------------
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 shares authorized,
and 56,539,791 and 56,410,787 shares issued March 31, 2000
and December 31, 1999, respectively 56,539 56,411
Surplus 86,233 85,784
Undivided profits 50,743 48,491
Accumulated other comprehensive income:
Net unrealized gain/(loss) on securities available for sale 274 (2,452)
Treasury stock at cost - 3,122,867 and 3,002,378 shares at
March 31, 2000 and December 31, 1999, respectively (23,245) (21,878)
------------------ -----------------
Total shareholders' equity 170,544 166,356
------------------ -----------------
Total liabilities and shareholders' equity $ 2,353,653 2,364,022
================== =================
</TABLE>
See accompanying notes to consolidated interim financial statements.
2
<PAGE>
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED March 31, 2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income..............................................$ 10,270 9,323
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 521 811
Gain on sales of fixed assets.......................... (48) (1,244)
Provision for loan losses.............................. 850 1,513
Loss on sale of securities available for sale.......... 1,011 972
Gain on sale of securities available for sale.......... --- (552)
Provision for deferred tax benefit..................... (418) (717)
Decrease in taxes receivable........................... 5,624 5,176
Increase in interest receivable........................ (102) (1,148)
Increase/(decrease) in interest payable................ 103 (53)
Increase in other assets............................... (8,394) (17,637)
Increase/(decrease) in accrued expenses................ (3,053) 156
-------- --------
Total adjustments.................................... (3,906) (12,723)
-------- --------
Net cash provided by/(used in) operating activities...... 6,364 (3,400)
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale... 49,799 76,020
Purchase of securities available for sale.............. (73,051) (83,450)
Proceeds from maturities and calls
of securities available for sale...................... 14,083 39,758
Net (increase)/decrease in loans....................... (5,926) 2,081
Proceeds from dispositions of real estate owned........ 212 2,936
Proceeds from sales of fixed assets.................... 53 2,079
Capital expenditures................................... (540) (448)
-------- --------
Net cash provided by/(used in) investing activities.. (15,370) 38,976
-------- --------
Cash flows from financing activities:
Net decrease in deposits............................... (3,851) (46,856)
Decrease in short-term borrowing....................... (7,748) (3,574)
Proceeds from exercise of stock options................ 577 1,312
Proceeds from sale of treasury stock................... 1,534 1,391
Purchase of treasury stock............................. (2,901) (3,176)
Dividends paid......................................... (8,026) (7,369)
-------- --------
Net cash used in financing activities................ (20,415) (58,272)
-------- --------
Net decrease in cash and cash equivalents................ (29,421) (22,696)
Cash and cash equivalents at beginning of period......... 330,512 424,929
-------- --------
Cash and cash equivalents at end of period..............$ 301,091 402,233
======== ========
See accompanying notes to consolidated interim financial statements. (Continued)
</TABLE>
-3-
<PAGE>
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows Continued (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
THREE MONTHS ENDED March 31, 1999 1999
-------- --------
<S> <C> <C>
Interest paid.........................................$ 17,698 19,292
Income taxes paid...................................... --- 350
Transfer of loans to real estate owned................. 241 1,318
Increase/(decrease) in dividends payable............... (8) 35
Change in unrealized (gain)/loss on securities
available for sale-gross of deferred taxes............ (4,605) 3,502
Change in deferred tax effect on unrealized gain/(loss)
on securities available for sale...................... 1,879 (1,431)
</TABLE>
See accompanying notes to consolidated interim financial statements.
-4-
<PAGE>
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements
(Unaudited)
1. Financial Statement Presentation
In the opinion of the management of TrustCo Bank Corp NY (the Company), the
accompanying unaudited Consolidated Interim Financial Statements contain all
adjustments necessary to present fairly the financial position as of March 31,
2000, the results of operations for the three months ended March 31, 2000 and
1999, and the cash flows for the three months ended March 31, 2000 and 1999. The
accompanying Consolidated Interim Financial Statements should be read in
conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial
Statements, including notes thereto, which are included in TrustCo Bank Corp
NY's 1999 Annual Report to Shareholders on Form 10-K. All share and per share
data have been adjusted for the 2 for 1 stock split declared in August 1999.
2. Earnings Per Share
A reconciliation of the component parts of earnings per share for the three
month period ended March 31, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
----------------- ---------------------- -----------------
<S> <C> <C> <C>
For the quarter ended
March 31, 2000:
Basic EPS:
Net income available to
Common shareholders......... $10,270 53,444 $0.192
Effect of Dilutive Securities:
Stock options............... ------ 1,745 -------
----------------- ---------------------- -----------------
Diluted EPS $10,270 55,189 $0.186
================= ====================== =================
For quarter ended
March 31, 1999:
Basic EPS:
Net income available to
Common shareholders......... $9,323 53,747 $0.173
Effect of Dilutive Securities:
Stock options............... ------- 2,238 -------
----------------- ---------------------- -----------------
Diluted EPS $9,323 55,985 $0.167
================= ====================== =================
Per share data has been adjusted for the 2 for 1 stock split declared in August 1999.
</TABLE>
5
<PAGE>
3. Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," (Statement 130).
This Statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes the reported net income
of a company adjusted for items that are currently accounted for as direct
entries to equity, such as the mark to market adjustment on securities available
for sale, foreign currency items and minimum pension liability adjustments. At
the Company, comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealized gains or losses on
securities available for sale for the period. Accumulated other comprehensive
income represents the net unrealized gains or losses on securities available for
sale as of the balance sheet dates.
Comprehensive income for the three month period ended March 31, 2000 and 1999
was $12,996,000 and $7,252,000 respectively. The following summarizes the
components of other comprehensive income:
Unrealized gains on securities: (dollars in thousands)
-------------------------------
Unrealized net holding gains arising during
three months ended March 31, 2000, net of tax
(pre-tax gain of $3,594) $2,128
Reclassification adjustment for net loss
realized in net income during the three months
ended March 31, 2000, net of tax (pre-tax loss
of $1,011) (598)
--------------
Other comprehensive income - three months
ended March 31, 2000 $2,726
==============
Unrealized net holding losses arising during
three months ended March 31, 1999, net of tax
(pre-tax loss of $3,922) ($2,319)
Reclassification adjustment for net loss realized
in net income during the three months ended March
31, 1999 net of tax (pre-tax loss of $420) (248)
--------------
Other comprehensive loss - three months ended
March 31, 1999 ($2,071)
==============
6
<PAGE>
4. Impact of Changes in Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement 133), which establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. In June 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" (Statement
137), which deferred the effective date of Statement 133 by one year,
from fiscal years beginning after June 15, 1999 to fiscal years
beginning after June 15, 2000. Management is currently evaluating the
impact, if any, on the Company's consolidated financial statements.
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have reviewed the consolidated statement of financial condition of TrustCo
Bank Corp NY and subsidiaries (the Company) as of March 31, 2000, and the
related consolidated statements of income and cash flows for the three month
periods ended March 31, 2000 and 1999. These consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of TrustCo Bank
Corp NY and subsidiaries as of December 31, 1999 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated January 18,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated statement of financial condition as of December 31, 1999 is fairly
stated, in all material respects, in relation to the consolidated statement of
financial condition from which it has been derived.
/s/KPMG LLP
______________________________
KPMG LLP
Albany, New York
April 12, 2000
8
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
TrustCo Bank Corp NY
Management's Discussion and Analysis
March 31, 2000
The review that follows focuses on the factors affecting the financial condition
and results of operations of TrustCo Bank Corp NY ("TrustCo" or "Company")
during the three month period ended March 31, 2000, with comparisons to 1999 as
applicable. Net interest income and net interest margin are presented on a fully
taxable equivalent basis in this discussion. The consolidated interim financial
statements and related notes, as well as the 1999 Annual Report to Shareholders
should be read in conjunction with this review. Amounts in prior period
consolidated interim financial statements are reclassified whenever necessary to
conform to the current period's presentation. Per share results have been
adjusted for the 2 for 1 stock split declared in 1999.
Forward-looking Statements
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which are
not historical or current facts, are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, and are subject to certain risks and uncertainties that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. TrustCo wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases have affected
and in the future could affect TrustCo's actual results, and could cause
TrustCo's actual financial performance to differ materially from that expressed
in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3)
competition, (4) certain vendors of critical systems or services failing to
comply with Year 2000 programming issues, (5) changes in the regulatory
environment, and (6) changes in general business and economic trends. The
foregoing list should not be construed as exhaustive, and the Company disclaims
any obligation to subsequently revise any forward-looking statements to reflect
events or circumstances after the date of such statements, or to reflect the
occurrence of anticipated or unanticipated events.
Following this discussion is the table "Distribution of Assets, Liabilities and
Shareholders' Equity: Interest Rates and Interest Differential" which gives a
detailed breakdown of TrustCo's average interest earning assets and interest
bearing liabilities for the three months ended March 31, 2000 and 1999.
Overview
TrustCo recorded net income of $10.3 million, or $0.186 of diluted earnings per
share for the three months ended March 31, 2000, as compared to net income of
$9.3 million or $0.167 of diluted earnings per share in the same period in 1999.
The primary factors accounting for the year to date increases are:
9
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
- Increase in net interest margin by 53 basis points from 3.94% in 1999
to 4.47% in 2000,
- Reduction in the provision for loan losses from $1.5 million in 1999
to $850 thousand in 2000, and
- Reduction in operating expenses by $280 thousand to $11.9 million.
These positive factors affecting net income were partially offset by:
- Reduction in interest earning assets by $82.2 million, from $2.36
billion in 1999 to $2.27 billion in 2000,
- Decrease in non-interest income from $5.4 million in 1999 to $3.8
million in 2000.
Asset/Liability Management
The Company strives to generate superior earnings capabilities through a mix of
core deposits, funding a prudent mix of earning assets. This is, in its most
fundamental form, the essence of asset/liability management. Additionally,
TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of
net interest income to changes in interest rates to an acceptable level while
enhancing profitability both on a short-term and long- term basis.
Earning Assets
Total interest earning assets decreased to $2.27 billion in 2000 from $2.36
billion in 1999 with an average yield of 7.62% in 2000 and 7.26% in 1999. Income
on earning assets increased by $655 thousand during this same time-period from
$42.6 million in 1999 to $43.3 million in 2000. The increase in interest income
on earning assets was attributable to the increase in yield on these assets.
Loans
The average balance of loans was $1.35 billion in 2000 and $1.32 billion in
1999. The yield on loans increased from 8.09% in 1999 to 8.13% in 2000. The
combination of the higher average balances and the higher rates resulted in a
increase in the interest income on loans by $865 thousand.
Within the category of loans, the average commercial loan balances increased by
$8.4 million, residential mortgage loans increased by $36.9 million, home equity
lines of credit decreased by $8.1 million, and the installment loan portfolio
decreased by $3.0 million. These changes continue to reflect the competitive
environment that exists for loans and the emphasis that TrustCo has for the
residential mortgage loan products.
Securities Available for Sale
Securities available for sale had an average balance of $667.8 million during
the quarter ended March 31, 2000, as compared to $678.3 million in 1999.
10
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
These balances earned an average yield of 7.29% in 2000 and 6.95% in 1999. This
resulted in interest income on the securities available for sale of $12.2
million in 2000 and $11.8 million in 1999. The decrease in average balances
during the quarter caused a $1.9 million decrease in the interest income, which
was offset by a $2.3 million increase in interest income due to the change in
the average rates.
Most of the decrease in the balances of securities available for sale was
centered in the categories of mortgage-backed securities and other securities,
which decreased by $36.4 million and $33.7 million, respectively between the
first quarter of 1999 and 2000. U.S. Treasuries and agencies and investments in
states and political subdivisions increased on average $53.0 million and $6.6
million, respectively.
Federal Funds Sold
The 2000 first quarter average balance of federal funds sold was $250.7 million,
$107.3 million less than the $357.9 million in 1999. The portfolio yield
increased to 5.76% in 2000, compared to 4.78% in 1999. Changes in the yield
resulted from changes in the target rate set by the Federal Reserve Board for
federal funds sold. Interest income on this portfolio decreased by approximately
$630 thousand from $4.2 million in 1999 to $3.6 million in 2000.
The decrease in the average balance of federal funds sold is directly related to
the decrease in the average balance of deposits (discussed later in this
Management's Discussion and Analysis).
Funding Opportunities
TrustCo utilizes various funding sources to support its earning asset portfolio.
The vast majority of the Company's funding comes from traditional deposit
vehicles such as savings, interest-bearing checking and time deposit accounts.
Total interest-bearing deposits (which includes interest bearing checking, money
market accounts, savings, and certificates of deposit) decreased to $1.83
billion during 2000, and the average rate paid decreased to 3.53% for 2000 from
3.75% for 1999. Total interest expense on these deposits decreased $1.7 million
to $16.1 million.
Short-term borrowings, primarily the Trustco Short-Term Investment Account,
increased by $2.1 million between the first quarter of 1999 and 2000. Total
interest expense on this account increased by $300 thousand in 2000, and the
average rate paid increased 71 basis points to 4.71%.
Demand deposit balances increased by 8.1% during the period from the first
quarter of 1999 to the first quarter of 2000. The average balance was $148.0
million in 1999, and $160.1 million in 2000.
During 1999 and continuing into 2000, TrustCo has reduced the rate paid on all
funding sources from 3.77% for the first quarter of 1999 to 3.62% for the first
11
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
quarter of 2000. These reductions in interest rates were a result of a general
fall in interest rates in the market place between those two dates. In addition,
the decreases in interest bearing time deposits were the result of actions taken
during 1999 to reduce the level of high cost certificates of deposit that had
accumulated in TrustCo. The average balance of other time deposits decreased by
$83.6 million between the first quarter of 1999 and 2000. To accomplish the
objective of reducing the level of high cost deposits, interest rates on these
products were decreased significantly as the identified deposit accounts
matured. As a result of executing this strategy the average cost of other time
deposits decreased from 5.28% in 1999 to 4.97% in 2000.
Net Interest Income
Taxable equivalent net interest income increased to $25.5 million in 2000. The
net interest spread also increased 51 basis points between 1999 and 2000 and the
net interest margin increased by 53 basis points.
Nonperforming Assets
Nonperforming assets include nonperforming loans which are those loans in a
nonaccrual status, loans that have been restructured, and loans past due 90 days
or more and still accruing interest. Also included in the total of nonperforming
assets are foreclosed real estate properties which are categorized as real
estate owned.
Impaired loans are considered to be those commercial and commercial real estate
loans in a nonaccrual status, and loans restructured since January 1, 1995, when
the accounting standards required the identification, measurement and reporting
of impaired loans. The following will describe the nonperforming assets of
TrustCo as of March 31, 2000.
Nonperforming loans: Total nonperforming loans were $10.1 million at March 31,
2000, a decrease from the $ 12.1 million of nonperforming loans at March 31,
1999. Nonaccrual loans were $4.4 million at March 31, 2000 down from the $7.8
million at March 31, 1999. Restructured loans were $5.6 million at March 31,
2000 compared to $3.9 million at March 31, 1999.
All of the $10.1 million of nonperforming loans at March 31, 2000 are
residential real estate or retail consumer loans. In prior years the vast
majority of nonperforming loans were concentrated in the commercial and
commercial real estate portfolios. There has been a dramatic shifting of
nonperforming loans to the residential real estate and retail consumer loan
portfolio for several factors, including:
- The overall emphasis within TrustCo for residential real estate
originations,
- The relatively weak economic environment in the upstate New York
territory, and
- The reduction in real estate values in TrustCo's market area
that has occurred since the middle of the 1990's, thereby
causing a reduction in the collateral that supports the real
estate loans.
Consumer defaults and bankruptcies have increased dramatically over the
12
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
last several years and this has lead to an increase in defaults on loans.
TrustCo strives to identify borrowers that are experiencing financial
difficulties and to work aggressively with them so as to minimize losses or
exposures.
Total impaired loans at March 31 2000 of $5.4 million, consisted of restructured
retail loans. During the first quarter of 2000, there have been $433 thousand of
commercial loan charge offs, $149 thousand of consumer loan charge offs and $976
thousand of mortgage loan charge offs as compared with $150 thousand of
commercial loan charge offs, $170 thousand of consumer loan charge offs and $2.0
million of mortgage loan charge offs in the first quarter of 1999. Recoveries
during the quarter have been $565 thousand in 2000 and $1.2 million in 1999.
Real estate owned: Total real estate owned of $1.6 million at March 31, 2000
decreased by $1.4 million since March 31, 1999.
Allowance for loan losses: The balance of the allowance for loan losses is
maintained at a level that is, in management's judgment, representative of the
amount of the risk inherent in the loan portfolio.
At March 31, 2000, the allowance for loan losses was $55.7 million, which
represents a slight decrease from the $55.8 million in the allowance at December
31, 1999. The allowance represents 4.11% of the loan portfolio as of March 31,
2000 compared to 4.16% at March 31, 1999. The provision charged to expense was
$850 thousand compared to $1.5 million for 1999.
In deciding on the adequacy of the allowance for loan losses, management reviews
the current nonperforming loan portfolio as well as loans that are past due and
not yet categorized as nonperforming for reporting purposes. Also, there are a
number of other factors that are taken into consideration, including:
- The magnitude and nature of the recent loan charge offs and the
movement of charge offs to the residential real estate loan portfolio,
- The growth in the loan portfolio and the implication that has in
relation to the economic climate in the bank's business territory,
- Changes in underwriting standards in the competitive environment that
TrustCo operates in,
- Significant growth in the level of losses associated with bankruptcies
and the time period needed to foreclose, secure and dispose of
collateral, and
- The relatively weak economic environment in the upstate New York
territory combined with declining real estate prices.
Consumer bankruptcies and defaults in general have risen significantly during
the 1990's. This trend appears to be continuing as a result of economic strife
13
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
and the relative ease of access by consumers to additional credit. Job growth in
the upstate New York area has been modest to declining and there continues to be
a shifting of higher paying jobs in manufacturing and government to lower paying
service jobs.
In light of these trends, management believes the allowance for loan losses is
reasonable in relation to the risk that is present in its current loan
portfolio.
Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's
earnings performance and strong capital position enable the Company to raise
funds easily in the marketplace and to secure new sources of funding. The
Company actively manages its liquidity through target ratios established under
its liquidity policies. Continual monitoring of both historical and prospective
ratios allows TrustCo to employ strategies necessary to maintain adequate
liquidity. Management has also defined various degrees of adverse liquidity
situations, which could potentially occur, and has prepared appropriate
contingency plans should such a situation arise.
Noninterest Income
Total noninterest income for the first quarter was $3.8 million, compared to
$5.4 million in 1999. Included in both the 2000 and 1999 first quarter results
are net losses on securities transactions of $1.0 million in 2000, and $420
thousand in 1999. Once these securities transactions are removed, total
noninterest income decreased from $5.8 million in 1999 to $4.9 million in 2000.
During the first quarter of 1999, the Company sold a banking building and
realized a gain of $1.2 million, which is included in other noninterest income
for the quarter.
Noninterest Expenses
Total noninterest expense was $11.9 million for 2000 compared to $12.2 million
in 1999. The Company's efficiency ratio was 38.31% in 2000 and 41.31% in 1999.
During the first quarter of 1999, equipment expense had increased by $550
thousand as a result of additional depreciation on computer equipment purchased
for Year 2000 project. During the first quarter of 2000, equipment expense
decresed by $580 thousand, mostly as the result of lower depreciation expense.
Income Taxes
In the first quarter of 2000 TrustCo recognized income tax expense of $5.2
million, compared to $4.8 million in 1999. The effective tax rate for 2000 was
33.6% and was 34.0% for 1999.
Capital Resources
Consistent with its long-term goal of operating a sound and profitable financial
organization, TrustCo strives to maintain strong capital ratios. New issues of
equity securities have not been required since traditionally, most of its
capital requirements are met through capital retention.
14
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
Total shareholders' equity at March 31, 2000 was $170.5 million, an increase
from the $166.4 million at year-end 1999. The change in shareholders' equity
between year end and the first quarter 2000 reflects a $2.7 million increase in
the net unrealized gain on securities available for sale, and a $1.4 million
increase in treasury stock during the first quarter of 2000 offset by $2.3
million of net earnings retained by the Company and a $577 thousand increase in
capital and surplus resulting from stock options exercised
TrustCo declared dividends of $0.150 in 2000, compared with $0.138 in 1999.
These results represent a dividend payout ratio of 78.07% in 2000 and 79.42% in
1999. The Company achieved the following ratios as of March 31, 2000 and 1999:
March 31, Minimum Regulatory
2000 1999 Guidelines
--------------------------------------------
Tier 1 risk adjusted
capital 13.66% 13.14 4.00
Total risk adjusted
capital 14.95 14.43 8.00
In addition, at March 31, 2000 and 1999, the consolidated equity to total assets
ratio (excluding the mark to market effect of securities available for sale) was
7.24% and 6.98%, respectively.
Year 2000 Update
Management believes that all necessary precautions have been taken with respect
to year 2000 readiness. To date, no significant problems have occurred, and
management believes that no additional remediation will be necessary.
15
<PAGE>
<TABLE>
<CAPTION>
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields on
interest earning assets and annualized rates on interest bearing libilities of
TrustCo (adjusted for tax equivalency) for each of the reported periods. Non-
accrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized depreciation of $4.9
million, net of tax, in the available for sale portfolio in 2000 and unrealized
appreciation of $18.2 million, net of tax, in 1999. The subtotals contained in
the following table are the arithmetic totals of the items in that category.
First Quarter First Quarter
2000 1999
______________________________ _______________________________ ____________________________
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans......................$ 193,417 $ 4,272 8.84%$ 185,039 $ 4,146 8.99% 126 487 (361)
Residential mortgage loans............. 1,000,667 19,535 7.81% 963,790 18,920 7.85% 615 1,267 (652)
Home equity lines of credit ........... 137,707 2,953 8.60% 145,809 2,783 7.74% 170 (780) 950
Installment loans...................... 21,381 718 13.47% 24,372 764 12.71% (46) (280) 234
--------- ------ --------- ------ ----- ----- -----
Loans, net of unearned income.......... 1,353,172 27,478 8.13% 1,319,010 26,613 8.09% 865 694 171
Securities available for sale:
U.S. Treasuries and agencies.......... 213,034 3,933 7.38% 160,025 2,963 7.41% 970 1,031 (61)
Mortgage-backed securities............ 212,541 3,753 7.06% 248,932 4,079 6.55% (326) (1,868) 1,542
States and political subdivisions..... 138,277 2,770 8.01% 131,705 2,611 7.93% 159 131 28
Other ................................ 103,952 1,715 6.60% 137,651 2,123 6.18% (408) (1,230) 822
--------- ------ --------- ------ ----- ----- -----
Total securities available for sale. 667,804 12,171 7.29% 678,313 11,776 6.95% 395 (1,936) 2,331
Federal funds sold..................... 250,659 3,587 5.76% 357,911 4,216 4.78% (629) (4,531) 3,902
Other short-term investments........... 3,025 45 5.96% 1,666 21 5.16% 24 20 4
--------- ------ --------- ------ ----- ----- -----
Total Interest earning assets........ 2,274,660 43,281 7.62% 2,356,900 42,626 7.26% 655 (5,753) 6,408
Allowance for loan losses.............. (56,480) ------ (56,275) ------ ----- ----- -----
Cash and noninterest earning assets.... 129,027 142,232
--------- ---------
Total assets........................$ 2,347,207 $ 2,442,857
========= =========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking..........$ 269,975 715 1.07%$ 258,415 $ 676 1.06% 39 36 3
Money market accounts............... 59,052 401 2.73% 59,302 399 2.73% 2 2 ---
Savings............................... 638,868 4,294 2.70% 659,406 4,397 2.70% (103) (103) ---
Other time deposits................... 861,702 10,645 4.97% 945,305 12,319 5.28% (1,674) (998) (676)
--------- ------ --------- ------ ----- ----- -----
Total time deposits.................. 1,829,597 16,055 3.53% 1,922,428 17,791 3.75% (1,736) (1,063) (673)
Short-term borrowings.................. 149,042 1,746 4.71% 146,902 1,448 4.00% 298 23 275
--------- ------ --------- ------ ----- ----- -----
Total interest bearing liabilities... 1,978,639 17,801 3.62% 2,069,330 19,239 3.77% (1,438) (1,040) (398)
Demand deposits........................ 160,051 ------ 148,018 ------ ----- ----- -----
Other liabilities...................... 43,040 38,946
Shareholders' equity................... 165,477 186,563
--------- ---------
Total liab. & shareholders' equity..$ 2,347,207 $ 2,442,857
========= =========
Net interest income.................... 25,480 23,387 2,093 (4,713) 6,806
------- ------- ----- ----- -----
Net interest spread.................... 4.00% 3.49%
Net interest margin (net interest
income to total interest earning
assets)............................. 4.47% 3.94%
Tax equivalent adjustment 1,037 960
------- --------
Net interest income per book........ $ 24,443 $ 22,427
======= ========
</TABLE>
-16-
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Company's interest rate risk
position since December 31, 1999. 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.
17
<PAGE>
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
Date: May 8, 2000 By: /s/ Robert A. McCormick
-----------------------------
Robert A. McCormick
President and
Chief Executive Officer
Date: May 8, 2000 By:/s/ Robert T. Cushing
-----------------------------
Robert T. Cushing
Vice President and Chief
Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 34,995 37,341
<INT-BEARING-DEPOSITS> 313 892
<FED-FUNDS-SOLD> 258,000 364,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 661,376 681,160
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 1,354,490 1,318,188
<ALLOWANCE> 55,666 54,772
<TOTAL-ASSETS> 2,353,653 2,434,163
<DEPOSITS> 1,991,058 2,060,558
<SHORT-TERM> 145,034 144,350
<LIABILITIES-OTHER> 47,017 44,038
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 56,539 28,163
<OTHER-SE> 114,005 157,054
<TOTAL-LIABILITIES-AND-EQUITY> 2,353,653 2,434,163
<INTEREST-LOAN> 27,432 26,560
<INTEREST-INVEST> 11,225 10,890
<INTEREST-OTHER> 3,587 4,216
<INTEREST-TOTAL> 42,244 41,666
<INTEREST-DEPOSIT> 16,055 17,791
<INTEREST-EXPENSE> 17,801 19,239
<INTEREST-INCOME-NET> 24,443 22,427
<LOAN-LOSSES> 850 1,513
<SECURITIES-GAINS> (1,049) (420)
<EXPENSE-OTHER> 11,922 12,202
<INCOME-PRETAX> 15,473 14,132
<INCOME-PRE-EXTRAORDINARY> 10,270 9,323
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,270 9,323
<EPS-BASIC> 0.192 0.173 <F1>
<EPS-DILUTED> 0.186 0.167 <F1>
<YIELD-ACTUAL> 4.47 3.94
<LOANS-NON> 4,437 7,801
<LOANS-PAST> 66 401
<LOANS-TROUBLED> 5,626 3,905
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 55,820 54,375
<CHARGE-OFFS> 1,568 2,282
<RECOVERIES> 564 1,166
<ALLOWANCE-CLOSE> 55,666 54,772
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 55,666 54,772
<FN>
<F1> EPS primary and EPS diluted have been restated to reflect a
two-for-one stock split in November 1999. The March 31, 1999 Financial
Data Schedule has been restated.
</FN>
</TABLE>
