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, 2001 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 Identification No.) incorporation or organization) 5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302 (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, 2001 --------------------------- ---------------------- $1 Par Value 62,036,325
TrustCo Bank Corp NY INDEX Part I. FINANCIAL INFORMATION PAGE NO. Item 1. Interim Financial Statements (Unaudited): Consolidated 1 Statements of Income for the Three Months Ended March 31, 2001 and 2000 Consolidated Statements of Financial Condition as of March 31, 2 2001 and December 31, 2000 Consolidated Statements of Cash Flows for the Three Months 3 - 4 Ended March 31, 2001 and 2000 Notes to Consolidated Interim Financial Statements 5 - 7 Independent Accountants' Review Report 8 Item 2. Management's Discussion and Analysis 9 - 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 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. Submissions of Matters to Vote of Security Holders -- None Item 5. Other Information -- None i
Item 6.Exhibits and Reports on Form 8-K (a) Exhibits - None (b) REPORTS ON FORM 8-K On April 17, 2001, TrustCo filed a Current Report on Form 8-K, regarding two press releases dated April 17, 2001, detailing first quarter inancial results. ii
TRUSTCO BANK CORP NY Consolidated Statements of Income (dollars in thousands, except per share data) <TABLE> <CAPTION> 3 Months Ended March 31 2001 2000 <S> <C> <C> Interest and dividend income: Interest and fees on loans $ 30,042 27,432 Interest on U. S. Treasuries and agencies 3,194 3,924 Interest on states and political subdivisions 2,368 1,870 Interest on mortgage-backed securities 3,594 3,753 Interest and dividends on other securities 858 1,678 Interest on federal funds sold 3,773 3,587 Total interest income 43,829 42,244 Interest expense: Interest on deposits: Interest-bearing checking 717 715 Savings 3,940 4,294 Money market deposit accounts 399 401 Time deposits 12,488 10,645 Interest on short-term borrowings 2,372 1,746 Interest on long-term debt 13 ----- Total interest expense 19,929 17,801 Net interest income 23,900 24,443 Provision for loan losses 1,495 850 Net interest income after provision for loan losses 22,405 23,593 Noninterest income: Trust department income 2,063 2,086 Fees for other services to customers 2,308 2,059 Net gain / (loss) on securities transactions 1,142 (1,049) Other 813 706 Total noninterest income 6,326 3,802 Noninterest expenses: Salaries and employee benefits 6,623 6,372 Net occupancy expense 1,329 1,185 Equipment expense 1,348 1,215 FDIC insurance expense 94 104 Professional services 591 665 Other real estate expenses / (income) (160) (44) Other 2,436 2,425 Total noninterest expenses 12,261 11,922 Income before taxes 16,470 15,473 Applicable income taxes 5,172 5,203 Net income $ 11,298 10,270 Net income per Common Share: - Basic $ 0.183 0.167 - Diluted $ 0.177 0.162 </TABLE> Per share data is adjusted for the effect of the 15% stock split declared August, 2000. See accompanying notes to consolidated interim financial statements. 1
<TABLE> <CAPTION> TRUSTCO BANK CORP NY Consolidated Statements of Financial Condition (dollars in thousands, except share data) <S> <C> <C> 3/31/01 2/31/00 ASSETS: Cash and due from banks $ 53,356 45,956 Federal funds sold 297,492 299,490 ----------- ---------- Total cash and cash equivalents 350,848 345,446 Securities available for sale: U. S. Treasuries and agencies 157,265 189,562 States and political subdivisions 192,545 173,195 Mortgage-backed securities 185,796 188,602 Other 71,924 53,925 ----------- ---------- Total securities available for sale 607,530 605,284 ----------- ---------- Loans: Commercial 205,906 199,728 Residential mortgage loans 1,137,045 1,119,437 Home equity line of credit 127,569 130,739 Installment loans 23,829 26,134 ----------- ---------- Total loans 1,494,349 1,476,038 ----------- ---------- Less: Allowance for loan losses 56,783 56,298 Unearned income 954 990 ----------- ---------- Net loans 1,436,612 1,418,750 Bank premises and equipment 18,335 17,416 Real estate owned 2,209 1,911 Other assets 67,359 67,391 ----------- ---------- Total assets $2,482,893 2,456,198 =========== ========== LIABILITIES: Deposits: Demand $ 182,174 191,260 Interest-bearing checking 293,773 277,543 Savings accounts 603,513 588,595 Money market deposit accounts 59,049 56,917 Certificates of deposit (in denominations of $100,000 or more) 129,008 123,211 Time deposits 752,112 773,465 ----------- ---------- Total deposits 2,019,629 2,010,991 Short-term borrowings 209,709 192,898 Long-term debt 841 911 Accrued expenses and other liabilities 52,702 55,555 ----------- ---------- Total liabilities 2,282,881 2,260,355 ----------- ---------- SHAREHOLDERS' EQUITY: Capital stock par value $1; 100,000,000 shares authorized, and 65,795,522 and 65,172,317 shares issued March 31, 2001 and December 31, 2000, respectively 65,796 65,172 Surplus 79,819 78,407 Undivided profits 58,988 56,923 Accumulated other comprehensive income: Net unrealized gain on securities available for sale 21,866 20,539 Treasury stock at cost - 3,895,683 and 3,801,267 shares at March 31, 2001 and December 31, 2000, respectively (26,457) (25,198) ----------- ---------- Total shareholders' equity 200,012 195,843 ----------- ---------- Total liabilities and shareholders' equity $2,482,893 2,456,198 =========== ========== </TABLE> See accompanying notes to consolidated interim financial statements. 2
<TABLE> <CAPTION> TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS THREE MONTHS ENDED March 31, <S> <C> <C> 2001 2000 -------- -------- Cash flows from operating activities: Net income.............................................. $11,298 10,270 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 515 521 Gain on sales of fixed assets.......................... --- (48) Provision for loan losses.............................. 1,495 850 Loss on sale of securities available for sale.......... 118 1,049 Gain on sale of securities available for sale.......... (1,260) --- Deferred tax benefit................................... (1,297) (418) Decrease in taxes receivable........................... 5,854 5,624 (Increase)/decrease in interest receivable.............. 312 (102) Increase/(decrease) in interest payable................ (192) 103 Increase in other assets............................... (5,897) (8,394) Decrease in accrued expenses........................... (2,687) (3,091) -------- -------- Total adjustments.................................... (3,039) (3,906) -------- -------- Net cash provided by operating activities................ 8,259 6,364 -------- -------- Cash flows from investing activities: Proceeds from sales and calls of securities available for sale.................................... 67,257 49,799 Purchase of securities available for sale.............. (67,065) (73,051) Proceeds from maturities of securities available for sale.................................... 964 14,083 Net increase in loans.................................. (20,080) (5,926) Proceeds from dispositions of real estate owned........ 467 212 Proceeds from sales of fixed assets.................... --- 53 Capital expenditures................................... (1,349) (540) -------- -------- Net cash used in investing activities................ (19,806) (15,370) -------- -------- Cash flows from financing activities: Net increase/(decrease) in deposits.................... 8,638 (3,851) Increase/(decrease) in short-term borrowings........... 16,811 (7,748) Repayment of long-term debt............................ (70) --- Proceeds from exercise of stock options................ 2,036 577 Proceeds from sale of treasury stock................... 1,677 1,534 Purchase of treasury stock............................. (2,936) (2,901) Dividends paid......................................... (9,207) (8,026) -------- -------- Net cash (used in)/provided by financing activities.. 16,949 (20,415) -------- -------- Net increase/(decrease) in cash and cash equivalents..... 5,402 (29,421) Cash and cash equivalents at beginning of period......... 345,446 330,512 -------- -------- Cash and cash equivalents at end of period.............. $350,848 301,091 ======== ======== See accompanying notes to consolidated interim financial statements. (Continued) </TABLE> 3
<TABLE> <CAPTION> TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows Continued (Unaudited) (dollars in thousands) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: THREE MONTHS ENDED March 31, 2001 2000 -------- -------- <S> <C> <C> Interest paid.......................................... $ 20,121 17,698 Income taxes paid...................................... 899 --- Transfer of loans to real estate owned................. 723 241 Increase/(decrease) in dividends payable............... 26 (8) Change in unrealized gain on securities available for sale-gross of deferred taxes............ (2,260) (4,605) Change in deferred tax effect on unrealized gain on securities available for sale...................... 933 1,879 </TABLE> See accompanying notes to consolidated interim financial statements. 4
TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (Unaudited) 1. FINANCIAL STATEMENT PRESENTATION In the opinion of the management of TrustCo Bank Corp NY (the Company), the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments necessary to present fairly the financial position as of March 31, 2001, the results of operations and cash flows for the three months ended March 31, 2001 and 2000. 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 2000 Annual Report to Shareholders on Form 10-K. 2. EARNINGS PER SHARE A reconciliation of the component parts of earnings per share for the three month period ended March 31, 2001 and 2000 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, 2001: Basic EPS: Net income available to Common shareholders ..................... $11,298 61,592 $.183 Effect of Dilutive Securities: Stock options ........................... -- 2,256 -- ------- ------ ----- Diluted EPS ............................. $11,298 63,848 $.177 ======= ====== ===== For quarter ended March 31, 2000: Basic EPS: Net income available to Common shareholders ...................... $10,270 61,461 $.167 Effect of Dilutive Securities: Stock options ............................ -- 2,007 -- ------- ------ ----- Diluted EPS .............................. $10,270 63,467 $.162 ======= ====== ===== </TABLE> Share and per share data have been adjusted for the 15% stock split declared in August 2000. 5
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 accounted for as direct entries to equity, such as the mark to market adjustment on securities available for sale, foreign currency items, minimum pension liability adjustments, and certain derivitive gains and losses. 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, 2001 and 2000 was $12,625,000 and $12,996,000 respectively. The following summarizes the components of other comprehensive income: <TABLE> <CAPTION> (dollars in thousands) <S> <C> Unrealized gains on securities: Unrealized net holding Gains arising during the three months ended March 31, 2001, net of tax (pre-tax gain of $3,402). $2,002 Less reclassification adjustment for net gain realized in net income during the three months ended March 31, 2001, net of tax (pre-tax gain of $1,142). 675 -------------- Other comprehensive income - three months ended March 31, 2001 $1,327 ============== Unrealized net holding gains arising during the three months ended March 31, 2000, net of tax (pre-tax gain of $3,594). $2,128 Less 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 ============== </TABLE> 6
4. IMPACT OF CHANGES IN ACCOUNTING STANDARDS The Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), effective January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of condition and measure those instruments at fair value. Changes in the fair value of the derivative financial instruments are reported in either earnings or comprehensive income, depending on the use of the derivative and whether or not it qualifies for hedge accounting. Special hedge accounting treatment is permitted only if specific criteria are met, including a requirement that the hedging relationship be highly effective both at inception and on an ongoing basis. Accounting for hedges varies based on the type of hedge - fair value or cash flow. Results of effective hedges are recognized in current earnings for fair value hedges and in other comprehensive income for cash flow hedges. Ineffective portions of hedges are recognized immediately in earnings and are not deferred. The adoption of Statement 133 as of January 1, 2001 did not have a material effect on the Company's consolidated financial statements, as the Company had no derivitive instruments or embedded derivitives at adoption or at any time during the first quarter of 2001. If the Company were to invest in derivative investments, there may be increased volatility in net income and shareholders' equity on an ongoing basis as a result of accounting for derivative instruments in accordance with Statement 133. In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (Statement 140). Statement 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Under Statement 140, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. Statement 140 also provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Statement 140 is effective for certain disclosures in the fiscal year ended December 31, 2000, and for certain transactions occurring after March 31, 2001. The adoption of Statement 140 did not have, and is not expected to have, a material effect on the Company's consolidated financial statements. 7
INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders TrustCo Bank Corp NY: We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries (the Company) as of March 31, 2001, and the related consolidated statements of income and cash flows for the three month periods ended March 31, 2001 and 2000. 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 2000 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 19, 2001 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, 2000 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 13, 2001 8
Trustco Bank Corp NY Management's Discussion and Analysis March 31, 2001 TRUSTCO BANK CORP NY MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2001 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, 2001, with comparisons to 2000 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 2000 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 15% stock split declared in 2000. 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) changes in the regulatory environment, and (5) changes in general business and economic trends. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation 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, 2001 and 2000. ACQUISITION During the third quarter 2000 TrustCo acquired Landmark Financial Corporation and its wholly owned subsidiary, Landmark Community Bank, in a purchase business combination. The fair value of Landmark's assets was $26.2 million and the fair value of Landmark's liabilities was $24.3 million at the time of the acquisition. As a result of the relative immateriality of the balances acquired in the Landmark acquisition, the following discussion does not separately identify the change in balances due to the acquisition. 9
OVERVIEW TrustCo recorded net income of $11.3 million, or $0.177 of diluted earnings per share for the three months ended March 31, 2001, as compared to net income of $10.3 million or $0.162 of diluted earnings per share in the same period in 2000. The primary factors accounting for the year to date increases were: ` Increase in interest earning assets of $60.2 million to $2.33 billion in 2001 as compared to $2.27 billion in 2000, ` Net securities transactions resulting in $1.1 million of gains in 2001 as compared to $1.0 million of losses in 2000, and . Increases in noninterest income from $4.9 million to $5.2 million in 2001. These positive factors affecting net income were partially offset by: ` Decrease in net interest margin from 4.47% in 2000 to 4.28% in 2001, ` Increase in the provision for loan losses from $850 thousand in 2000 to $1.5 million in 2001, and ` Increase in noninterest expense of $339 thousand to $12.3 million. 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 increased to $2.33 billion in 2001 from $2.27 billion in 2000 with an average yield of 7.74% in 2001 and 7.62% in 2000. Income on earning assets increased by $1.8 million during this same time-period from $43.3 million in 2000 to $45.1 million in 2001. The increase in interest income on earning assets was attributable to both the increase in yield on these assets and the increase in average balances. LOANS The average balance of loans was $1.48 billion in 2001 and $1.35 billion in 2000. The yield on loans decreased slightly from 8.13% in 2000 to 8.12% in 2001. The combination of the higher average balances and the slightly lower rates resulted in an increase in the interest income on loans by $2.6 million. 10
Within the category of loans, the average commercial loan balances increased by $9.6 million, residential mortgage loans increased by $127.7 million, home equity lines of credit decreased by $8.4 million, and the installment loan portfolio increased by $2.4 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 $582.3 million during the quarter ended March 31, 2001, as compared to $667.8 million in 2000. These balances earned an average yield of 7.72% in 2001 and 7.29% in 2000. This resulted in interest income on the securities available for sale of $11.2 million in 2001 and $12.2 million in 2000. The decrease in average balances during the quarter caused a $4.6 million decrease in the interest income, which was offset by a $3.7 million increase in interest income due to the increase in the average rates. Most of the decrease in the balances of securities available for sale was centered in the categories of U.S. Treasuries and agencies, mortgage-backed securities and other securities, which decreased by $46.7 million, $19.1 million and $55.8 million, respectively between the first quarter of 2000 and 2001. Investments in obligations of states and political subdivisions increased $36.0 million on average. FEDERAL FUNDS SOLD The 2001 first quarter average balance of federal funds sold was $268.2 million, $17.5 million more than the $250.7 million in 2000. The portfolio yield decreased to 5.71% in 2001, compared to 5.76% in 2000. 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 increased by approximately $186 thousand from $3.6 million in 2000 to $3.8 million in 2001. 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 $1.82 billion during 2001, and the average rate paid increased to 3.91% for 2001 from 3.53% for 2000. Total interest expense on these deposits increased $1.5 million to $17.5 million. Short-term borrowings, primarily the Trustco Short-Term Investment Account, increased by $50.6 million between the first quarter of 2000 and 2001. Total interest expense on this account increased by $626 thousand in 2001, and the average rate paid increased 11 basis points to 4.82%. 11
Demand deposit balances increased by 10.0% during the period from the first quarter of 2000 to the first quarter of 2001. The average balance was $176.1 million in 2000, and $160.1 million in 2000. NET INTEREST INCOME Taxable equivalent net interest income decreased to $25.2 million in 2001. The net interest spread also decreased 26 basis points between 2000 and 2001 and the net interest margin decreased by 19 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 describes the nonperforming assets of TrustCo as of March 31, 2001. Nonperforming loans: Total nonperforming loans were $11.1 million at March 31, 2001, an increase from the $ 10.1 million of nonperforming loans at March 31, 2000. Nonaccrual loans were $5.5 million at March 31, 2001 an increase from the $4.4 million at March 31, 2000. Restructured loans were $5.1 million at March 31, 2001 compared to $5.6 million at March 31, 2000. Virtually all of the nonperforming loans at March 31, 2001 and 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 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. 12
Total impaired loans at March 31 2001 of $5.6 million, consisted of restructured retail loans. During the first quarter of 2001, there were $248 thousand of commercial loan charge offs, $140 thousand of consumer loan charge offs and $1.2 million of residential mortgage loan charge offs as compared with $433 thousand of commercial loan charge offs, $149 thousand of consumer loan charge offs and $976 thousand of residential mortgage loan charge offs in the first quarter of 2000. Recoveries during the quarter were $559 thousand in 2001 and $611 thousand in 2000. Real estate owned: Total real estate owned of $2.2 million at March 31, 2001 increased by $611 thousand since March 31, 2000. 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, 2001, the allowance for loan losses was $56.8 million, which represents a slight increase from the $56.3 million in the allowance at December 31, 2000. The allowance represents 3.80% of the loan portfolio as of March 31, 2001 compared to 4.11% at March 31, 2000. The provision charged to expense was $1.5 million compared to $850 thousand for 2000. 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 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. 13
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 $6.3 million, compared to $3.8 million in 2000. Included in both the 2001 and 2000 first quarter results are net securities gains of $1.1 million in 2001, and net securities losses of $1.0 million in 2000. Once these securities transactions are removed, total noninterest income increased from $4.9 million in 2000 to $5.2 million in 2001. NONINTEREST EXPENSES Total noninterest expense was $12.3 million for 2001 compared to $11.9 million in 2000. The Company's efficiency ratio was 39.56% in 2001 and 38.31% in 2000. INCOME TAXES In the first quarter of 2001 and 2000, TrustCo recognized income tax expense of $5.2 million. The effective tax rate was 31.4% for 2001 and 33.6% for 2000. 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. Total shareholders' equity at March 31, 2001 was $200.0 million, an increase from the $195.8 million at year-end 2000. The change in shareholders' equity for the first quarter 2001 reflects a $1.3 million increase in the net unrealized gain on securities available for sale, $2.1 million of net earnings retained by the Company, and a $2.0 million increase in capital and surplus resulting from stock options exercised, partially offset by a $1.3 million increase in treasury stock. 14
TrustCo declared dividends of $0.150 in 2001, compared with $0.130 in 2000. These results represent a dividend payout ratio of 81.72% in 2001 and 78.07% in 2000. The Company achieved the following ratios as of March 31, 2001 and 2000: March 31, Minimum Regulatory 2001 2000 Guidelines Tier 1 risk adjusted capital 13.75% 13.66 4.00 Total risk adjusted capital 15.04 14.95 8.00 In addition, at March 31, 2001 and 2000, the consolidated equity to total assets ratio (excluding the mark to market effect of securities available for sale) was 7.24%. 15
TrustCo Bank Corp NY Management's Discussion and Analysis STATISTICAL DISCLOSURE I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following table summarizes the component distribution of average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing libilities of the Registrant and the Bank (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale is calculated using amortized costs for these securities. Included in the balance of shareholders' equity is unrealized appreciation, net of tax, in the available for sale portfolio of $21.4 million in 2001 and $11.6 million in 2000. The subtotals contained in the following table are the arithmetic totals of the items contained in that category. <TABLE> <CAPTION> First Quarter First Quarter 2001 2000 Average Average Average Average Change in Variance Variance (dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate Income/ Change Change Assets Expense <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Commercial loans.....................$ 202,992 4,459 8.81% $ 193,417 $ 4,272 8.84% 187 287 (100) Residential mortgage loans............ 1,128,368 22,113 7.84% 1,000,667 19,535 7.81% 2,578 2,502 76 Home equity lines of credit .......... 129,339 2,761 8.66% 137,707 2,953 8.60% (192) (314) 122 Installment loans..................... 23,777 749 12.77% 21,381 718 13.47% 31 225 (194) --------- ------ --------- ------ ------- ----- ----- Loans, net of unearned income......... 1,484,476 30,082 8.12% 1,353,172 27,478 8.13% 2,604 2,700 (96) Securities available for sale: U.S. Treasuries and agencies......... 166,373 3,204 7.70% 213,034 3,933 7.38% (729) (1,742) 1,013 Mortgage-backed securities........... 193,456 3,594 7.43% 212,541 3,753 7.06% (159) (1,088) 929 States and political subdivisions.... 174,297 3,485 8.00% 138,277 2,770 8.01% 715 752 (37) Other ............................... 48,132 951 7.93% 103,952 1,715 6.60% (764) (2,564) 1,800 --------- ------ --------- ------ ------- ----- ----- Total securities available for sale. 582,258 11,234 7.72% 667,804 12,171 7.29% (937) (4,642) 3,705 Federal funds sold.................... 268,162 3,773 5.71% 250,659 3,587 5.76% 186 385 (199) Other short-term investments.......... ---- --- --- 3,025 45 5.96% (45) (45) --- --------- ------ --------- ------ ------- ----- ----- Total Interest earning assets....... 2,334,896 45,089 7.74% 2,274,660 43,281 7.62% 1,808 (1,602) 3,410 Allowance for loan losses............. (57,024) ------ (56,480) ------ ------- ----- ----- Cash and non-interest earning assets.. 163,655 129,027 --------- --------- Total assets.......................$ 2,441,527 $ 2,347,207 ========= ========= Liabilities and shareholders' equity Deposits: Interest bearing checking...........$ 273,690 717 1.06% $ 269,975 715 1.07% 2 15 (13) Money market accounts................ 59,310 399 2.73% 59,052 401 2.73% (2) (2) --- Savings.............................. 591,545 3,940 2.70% 638,868 4,294 2.70% (354) (354) --- Time deposits........................ 893,426 12,488 5.67% 861,702 10,645 4.97% 1,843 382 1,461 --------- ------ --------- ------ ------- ----- ----- Total time deposits................. 1,817,971 17,544 3.91% 1,829,597 16,055 3.53% 1,489 41 1,448 Short-term borrowings................. 199,622 2,372 4.82% 149,042 1,746 4.71% 626 586 40 Long-term debt.................. 873 13 5.91% ---- --- --- 13 13 --- --------- ------ --------- ------ ------- ----- ----- Total interest bearing liabilities.. 2,018,466 19,929 4.00% 1,978,639 17,801 3.62% 2,128 640 1,488 Demand deposits....................... 176,129 ------ 160,051 ------ ------- ----- ----- Other liabilities..................... 48,661 43,040 Shareholders' equity.................. 198,271 165,477 --------- --------- Total liab. & shareholders' equity.$ 2,441,527 $ 2,347,207 ========= ========= Net interest income................... 25,160 25,480 (320) (2,242) 1,922 ------ ------ ------- ----- ----- Net interest spread................... 3.74% 4.00% Net interest margin (net interest income to total interest earning assets)............................ 4.28% 4.47% Tax equivalent adjustment 1,260 1,037 ------ ------ Net interest income per book....... $ 23,900 $ 24,443 ====== ====== </TABLE> 16
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's interest rate risk position since December 31, 2000. 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
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 11, 2000 By: /s/Robert A. McCormick -------------------------- Robert A. McCormick President and Chief Executive Officer Date: May 11, 2000 By: /s/ Robert T. Cushing -------------------------- Robert T. Cushing Vice President and Chief Financial Officer 18
(a) Exhibits - None 19