Conformed Copy 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, 1998 TRUSTCO BANK CORP NY (Exact name of registrant as specified in its charter) NEW YORK 14-1630287 (State or other jurisdiction (I.R.S. Employer of 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, 1998 --------------------------- ---------------------- $1 Par Value 23,332,314
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, 1998 and 1997 Consolidated Statements of Financial Condition as of March 2 31,1998 and December 31, 1997 Consolidated Statements of Cash Flows for the Three Months 3-4 Ended March 31, 1998 and 1997 Notes to Consolidated Interim Financial Statements 5-7 Independent Auditors' Report 8 Item 2 Management's Discussion and Analysis 9-15 Item 3 Quantitative and Qualitative Disclosures 16 About Market Risk Part II -- OTHER INFORMATION Item 1 Legal Proceedings -- NONE Item 2 Changes in Securities -- NONE Item 3 Defaults Upon Senior Securities -- NONE Item 4 Submission of Matters to Vote of Security Holders -- NONE Item 5 Other Information -- NONE
Part II -- OTHER INFORMATION (Continued) Item 6 Exhibits and Reports on Form 8-K (a) Exhibits -- NONE (b) Reports on Form 8-K Filing of Form 8-K on April 21, 1998, regarding two press releases dated April 21, 1998, detailing first quarter financial results, incorporated herein by reference.
<TABLE> TRUSTCO BANK CORP NY Consolidated Statements of Income (Unaudited) (dollars in thousands, except per share data) <CAPTION> 3 Months Ended March 31 1998 1997 Interest income: <S> <C> <C> Interest and fees on loans $ 27,882 26,812 Interest on U. S. Treasuries and agencies 5,078 7,446 Interest on states and political subdivisions 1,521 1,290 Interest on mortgage-backed securities 2,909 1,589 Other 891 436 Interest on federal funds sold 5,122 4,322 ---------------- ---------------- Total interest income 43,403 41,895 ---------------- ---------------- Interest expense: Interest on deposits: Interest-bearing checking 908 885 Savings 5,115 5,587 Money market deposit accounts 417 442 Certificates of deposit of $100,000 or more 1,692 1,322 Other time 12,056 11,335 Interest on short-term borrowings 1,567 1,317 ---------------- ---------------- Total interest expense 21,755 20,888 ---------------- ---------------- Net interest income 21,648 21,007 Provision for loan losses 1,372 1,210 ---------------- ---------------- Net interest income after provision for loan losses 20,276 19,797 ---------------- ---------------- Noninterest income: Trust department income 1,675 1,572 Fees for other services to customers 2,056 1,804 Net gain/(loss) on securities available for sale 32 (495) Other 791 655 ---------------- ---------------- Total noninterest income 4,554 3,536 ---------------- ---------------- Noninterest expenses: Salaries and employee benefits 5,797 5,715 Net occupancy expense 1,265 1,085 Equipment expense 1,248 757 FDIC insurance expense 62 61 Professional services 587 1,118 Other real estate expenses 326 189 Other 2,244 2,279 ---------------- ---------------- Total noninterest expenses 11,529 11,204 ---------------- ---------------- Income before taxes 13,301 12,129 Applicable income taxes 4,923 4,536 ---------------- ---------------- Net income $ 8,378 7,593 ================ ================ Net income per Common Share: - Basic $ 0.36 0.32 ================ ================ - Diluted $ 0.34 0.31 ================ ================ Per share data has been adjusted for the 15% stock split declared August, 1997. See accompanying notes to consolidated interim financial statements. </TABLE>
<TABLE> TRUSTCO BANK CORP NY Consolidated Statements of Financial Condition (dollars in thousands, except share data) <CAPTION> 03/31/98 12/31/97 ASSETS: (unaudited) <S> <C> <C> Cash and due from banks $ 34,579 42,740 Federal funds sold 403,000 395,000 ------------------ ------------------ Total cash and cash equivalents 437,579 437,740 Securities available for sale: U. S. Treasuries and agencies 233,247 278,823 States and political subdivisions 113,612 113,787 Mortgage-backed securities 175,025 155,080 Other 99,133 54,209 ------------------ ------------------ Total securities available for sale 621,017 601,899 ------------------ ------------------ Loans: Commercial 189,951 190,651 Residential mortgage loans 920,150 906,404 Home equity line of credit 166,243 172,448 Installment loans 27,649 29,989 ------------------ ------------------ Total loans 1,303,993 1,299,492 ------------------ ------------------ Less: Allowance for loan losses 53,984 53,455 Unearned income 1,136 1,216 ------------------ ------------------ Net loans 1,248,873 1,244,821 Bank premises and equipment 18,033 18,609 Real estate owned 7,295 9,309 Other assets 63,042 59,887 ------------------ ------------------ Total assets $ 2,395,839 2,372,265 ================== ================== LIABILITIES: Deposits: Demand $ 131,019 130,345 Interest-bearing checking 238,672 240,699 Savings accounts 657,674 650,601 Money market deposit accounts 57,091 57,021 Certificates of deposit (in denominations of $100,000 or more) 122,481 112,599 Other time 836,370 830,598 ------------------ ------------------ Total deposits 2,043,307 2,021,863 Short-term borrowings 131,778 127,850 Accrued expenses and other liabilities 43,776 43,727 ------------------ ------------------ Total liabilities 2,218,861 2,193,440 ------------------ ------------------ SHAREHOLDERS' EQUITY: Capital stock par value $1; 50,000,000 shares authorized, and 24,266,582 and 24,257,382 shares issued March 31, 1998 December 31, 1997, respectively 24,266 24,257 Surplus 113,110 112,702 Undivided profits 34,078 32,119 Accumulated other comprehensive income: Net unrealized gain on securities available for sale 14,413 15,851 Treasury stock at cost - 952,655 and 855,850 shares at March 31, 1998 and December 31, 1997, respectively (8,889) (6,104) ------------------ ------------------ Total shareholders' equity 176,978 178,825 ------------------ ------------------ Total liabilities and shareholders' equity $ 2,395,839 2,372,265 ================== ================== See accompanying notes to consolidated interim financial statements. </TABLE>
<TABLE> - 2 - TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) <CAPTION> INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS THREE MONTHS ENDED March 31, 1998 1997 -------- -------- Cash flows from operating activities: <S> <C> <C> Net income.............................................. $ 8,378 7,593 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 579 673 Gain on sales of fixed assets.......................... (186) --- Provision for loan losses................................ 1,372 1,210 Loss on sale of securities available for sale.................. 1 558 Gain on sale of securities available for sale.................. (33) (63) Provision for deferred tax benefit..................... (971) (1,613) Decrease in taxes receivable........................... 4,748 3,875 Increase in interest receivable........................... (1,408) (891) Increase in interest payable........................... 91 17 (Increase)/decrease in other assets..................... (3,884) 1,032 Increase/(decrease) in accrued expenses........................ (22) 920 -------- -------- Total adjustments.................................... 287 5,718 -------- -------- Net cash provided by operating activities................ 8,665 13,311 -------- -------- Cash flows from investing activities: Proceeds from sales of securities available for sale.......... 267 57,739 Purchase of securities available for sale................... (104,450) (51,844) Proceeds from maturities and calls of securities available for sale............................. 82,666 19,299 Net (increase)/decrease in loans............................... (6,390) 2,347 Proceeds from dispositions of Real Estate Owned........ 2,333 1,859 Proceeds from sales of fixed assets.................... 479 --- Capital expenditures................................... (296) (334) -------- -------- Net cash provided by/(used in) investing activities.......... (25,391) 29,066 -------- -------- Cash flows from financing activities: Net increase in deposits............................... 21,444 30,988 Increase in short-term borrowing........................ 3,928 807 Proceeds from exercise of stock options................ 102 320 Proceeds from sale of treasury stock................... 2,253 --- Purchase of treasury stock............................. (4,723) (922) Dividends paid......................................... (6,439) (5,600) -------- -------- Net cash provided by financing activities................ 16,565 25,593 -------- -------- Net increase/(decrease) in cash and cash equivalents............. (161) 67,970 Cash and cash equivalents at beginning of period............ 437,740 355,779 -------- -------- Cash and cash equivalents at end of period.............. $ 437,579 423,749 ======== ======== See accompanying notes to consolidated interim financial statements. (Continued) -3- </TABLE>
<TABLE> TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows Continued (Unaudited) (dollars in thousands) <CAPTION> SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: THREE MONTHS ENDED March 31, 1998 1997 -------- -------- <S> <C> <C> Interest paid.......................................... $ 21,664 20,871 Income taxes paid...................................... 1,146 2,274 Transfer of loans to real estate owned................. 966 5,170 Increase/(decrease) in dividends payable............... (20) 9 Change in unrealized gain on securities available for sale-gross.............................. 2,431 4,544 Change in deferred tax effect on unrealized gain on securities available for sale...................... (993) (1,896) See accompanying notes to consolidated interim financial statements. </TABLE> -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, 1998, the results of operations for the three months ended March 31, 1998 and 1997, and the cash flows for the three months ended March 31, 1998 and 1997. 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 1997 Annual Report to Shareholders on Form 10-K. All share and per share data have been adjusted for the 15% stock split declared in August, 1997. <TABLE> 2. Earnings Per Share A reconciliation of the component parts of earnings per share for the quarters ended March 31, 1998 and 1997 follows: <CAPTION> Weighted (In thousands, Net Average Shares Per Share except per share data) Income Outstanding Amounts For the quarter ended March 31 1998: Basic EPS: Net income available to <S> <C> <C> <C> common shareholders. . . . . . . . $8,378 23,381 $0.36 -------------------------------------------- Effect of dilutive Securities: Stock options. . . . . . . . . . . . . . . 945 ============================================ $8,378 24,326 $0.34 For the quarter ended March 31 1997: Basic EPS: Net income available to common shareholders. . . . . . . . $7,593 23,445 $0.32 Effect of dilutive Securities: Stock options. . . . . . . . . . . . . . . 668 -------------------------------------------- $7,593 24,113 $0.31 ============================================ </TABLE>
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. <TABLE> Comprehensive income for the three-month periods ended March 31, 1998 and 1997 was $6,940,000 and $4,945,000, respectively. The following summarizes the components of other comprehensive income: <CAPTION> Unrealized gains on securities: (dollars in thousands) Unrealized holding losses arising during three months <S> <C> ended March 31, 1998, net of tax (pre-tax amount of $2,399) ($1,419) Reclassification adjustment for net gain realized in net income during the three months ended March 31, 1998, net of tax (pre-tax amount of $32) 19 -- Other comprehensive income - three months ended March 31, 1998 ($1,438) ======== Unrealized holding losses arising during three months ended March 31, 1997, net of tax (pre-tax amount of $5,039) ($2,936) Reclassification adjustment for net loss realized in net income during the three months ended March 31, 1997, net of tax (pre-tax amount of $495) (288) ------ Other comprehensive income - three months ended March 31, 1997 ($2,648) ======== </TABLE>
4. Recent Accounting Pronouncements In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," (Statement 132), which amends the disclosure requirements of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," (Statement 87), Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," (Statement 88), and Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (Statement 106). Statement 132 standardizes the disclosure requirements of Statement 87 and Statement 106 to the extent practicable and recommends a parallel format for presenting information about pensions and other postretirement benefits. This Statement is applicable to all entities and addresses disclosure only. The Statement does not change any of the measurement or recognition provisions provided for in Statements 87, 88, or 106. The Statement is effective for fiscal years beginning after December 15, 1997. Management anticipates providing the required disclosures in the December 31, 1998 consolidated financial statements.
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, 1998, and the related consolidated statements of income and cash flows for the three month periods ended March 31, 1998 and 1997. 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, 1997 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 23, 1998, 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, 1997, is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived. /s/KPMG Peat Marwick LLP - ------------------------------ KPMG Peat Marwick LLP Albany, New York April 10, 1998
TrustCo Bank Corp NY Management's Discussion and Analysis March 31, 1998 The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo Bank Corp NY and subsidiaries ("TrustCo" or "Company") during the three month period ended March 31, 1998, with comparisons to 1997 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 1997 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 all been adjusted for the 15% stock split effective August 1997. 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 forgoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to 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, 1998 and 1997. Overview TrustCo recorded net income of $8.4 million, or $0.34 of diluted earnings per share for the three months ended March 31, 1998, as compared to $7.6 million or $0.31 of diluted earnings per share in the same period in 1997.
The primary factors accounting for the year to date increase are: ' increase in average total interest earning assets of $118.9 million or 5.5% between March 31, 1997 and March 31, 1998, and ' increase in noninterest income (excluding securities transactions) by 12.2% to $4.5 million. These increases were partially offset by the following: ' reduction in net interest margin by 8 basis points from 4.00% for the first quarter 1997 to 3.92% for the first quarter 1998, ' increase in noninterest expense of $325 thousand, and ' increase in income tax expense of $390 thousand between March 31, 1997 and March 31, 1998. 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 from $2.16 billion in 1997 to $2.28 billion in 1998 with an average yield of 7.79% in 1998, and 7.92% in 1997. Income on earning assets increased by $1.6 million during this same time period from $42.7 million in 1997 to $44.3 million in 1998. The increase in interest income on earning assets was attributable to the increase in average earning assets offset by the reduction in yield on these assets. Loans: The average balance of loans was $1.30 billion in 1998 and $1.24 billion in 1997. The yield on loans decreased from 8.70% in 1997 to 8.63% in 1998. The combination of the higher average balances offset by the lower rates resulted in an increase in the interest income on loans by $1.1 million. Within the category of loans, the average commercial loan balances decreased by $27.4 million, residential mortgage loans increased by $104.8 million, home equity lines of credit decreased by $13.6 million, and the installment loan portfolio decreased by $3.3 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 $605.9 million during the quarter ended March 31, 1998, as compared to $594.0 million in 1997. These balances earned an average yield of 7.37% in 1998 and 7.70% in 1997. This resulted in interest income on the securities available for sale of $11.2 million in 1998 and $11.4 million in 1997. The increase in average balances during the quarter caused a $1.0 million increase in the interest income which was offset by a $1.2 million decrease 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 category of U.S. Treasuries and agencies which decreased by $116.6 million between the first quarter of 1997 and 1998. Mortgage-backed securities and investments in states and political subdivisions increased on average $87.0 million and $15.5 million, respectively. During 1997 and continuing into 1998, the Company has shifted the emphasis in the securities available for sale portfolio to mortgage backed securities. This change is in response to available interest rates in the markets and the Company's desire to take advantage of market opportunities to protect higher interest rates in the portfolio as they become available. Mortgage-backed securities provide cash flows over the time period to final maturity and are subject to prepayments based upon the underlying loans' stated interest rates. Consequently, these securities provide for longer cash flows than do callable securities in a declining rate environment. Federal Funds Sold: The 1998 first quarter average balance of federal funds sold was $373.1 million, $46.5 million greater than the $326.7 million in 1997. The portfolio yield increased to 5.57% in 1998, compared to 5.37% in 1997, an increase of 20 basis points. 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 $800 thousand from $4.3 million in 1997 to $5.1 million in 1998. The increase in interest income was the result of the increase in average balances which caused approximately $600 thousand increase in interest income and approximately $200 thousand increase in interest income due to interest rates. Funding Opportunities TrustCo utilizes various funding sources to support its earning assets 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) increased to $1.90 billion during 1998, and the average rate paid decreased to 4.30% for 1998 from 4.32% for 1997. Total interest expense on these deposits increased $617 thousand to $20.2 million. Short-term borrowings, primarily the Trustco Short-Term Investment Account, increased by $17.1 million between the first quarter of 1997 and 1998. Total interest expense on this
account increased by $250 thousand in 1998, and the average rate paid increased 16 basis points to 4.86%. Demand deposit balances increased by 12% during the period from the first quarter of 1997 to the first quarter of 1998. The average balance was $114.6 million in 1997, and $128.1 million in 1998. Growth in deposit balances resulted from successful marketing and advertising campaigns. In TrustCo's past experience, deposits gathered as the result of these types of campaigns tend to become a very stable source of core customers who maintain their deposit relationship with the Company through various interest rate cycles. TrustCo competes based on a combination of interest rate, quality service and convenience. Growth in deposits can also be attributed to the success of the branch expansion program. Beginning in 1995, the Company stated its intention to open between two and four branches each year. Through the first quarter of 1998, that has resulted in the addition of eight new banking facilities. Net Interest Income Taxable equivalent net interest income increased slightly to $22.5 million in 1998. The net interest spread dropped 13 basis points between 1997 and 1998 and the net interest margin decreased by 8 basis points. Nonperforming Assets Nonperforming assets include nonperforming loans which are those loans in 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 defined as those commercial and commercial real estate loans on a nonaccrual status, and loans restructured since January 1, 1995, when newly effective accounting standards required changing the identification, measurement and reporting of impaired loans, and loans whose terms have been modified in a troubled debt restructuring. The following will describe the nonperforming assets of TrustCo as of March 31, 1998. Nonperforming loans: Total nonperforming loans were $11.7 million at March 31, 1998, down slightly from the $11.8 million at March 31, 1997, and $1.0 million over the year end 1997 balance of $10.7 million. Nonaccrual loans were $7.3 million at March 31, 1998, representing a decrease of $124 thousand from the year ago period, and $1.0 million more than the year end balance of $6.3 million. Restructured loans increased to $3.3 million at March 31, 1998, from the balance of $2.8 million at March 31, 1997, and the balance of $3.3 million at December 31, 1997. At March 31, 1998, there were no commercial and commercial real estate impaired loans. Total impaired loans at March 31, 1998 of $3.9 million, consisted of restructured retail loans. Of the total $11.7 million of nonperforming loans at quarter end, only the restructured retail loans of $3.9 million are considered by management to be impaired.
During the first quarter of 1998 there have been commercial loan charge offs of $471 thousand, and consumer loan charge offs of $857 thousand. Recoveries during the first quarter were $485 thousand. Real estate owned: Total real estate owned decreased to $7.3 million at March 31, 1998, from the $8.3 million at March 31, 1997, and from the $9.3 million at year end 1997. The decrease in real estate owned since year end 1997 is primarily the result of one commercial property that was disposed of during the quarter. The commercial property represented $1.7 million of the decrease in the balance of real estate owned since year end 1997. 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, given past, present and expected future conditions. At March 31, 1998, the allowance for loan losses was $54.0 million, which represents an increase of $529 thousand from the year end balance of $53.5 million. This allowance represents a reserve coverage ratio of 4.6 times the nonperforming loans at March 31, 1998. The provision charged to expense during the quarter was $1.4 million for 1998, and $1.2 million for 1997. 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 $4.6 million, compared to $3.5 million in 1997. Included in both the 1998 and 1997 first quarter results are net gains on securities transactions of $32 thousand in 1998, and net losses of $495 thousand in 1997. Once these securities transactions are removed, total noninterest income increased from $4.0 million in 1997 to $4.5 million in 1998. Noninterest Expense Total noninterest expense was $11.5 million for 1998 compared to $11.2 million in 1997. The Company's efficiency ratio was 39.1% in 1998 and 40.2% in 1997. During the first quarter 1998, the Company continued to execute the year 2000 remediation plan. TrustCo has been working on the year 2000 problem for several years and all reprogramming efforts are expected to be completed during 1998.
Income Taxes In the first quarter of 1998 TrustCo recognized income tax expense of $4.9 million, compared to $4.5 million in 1997. The effective tax rate for 1998 was 37.0% and for 1997 it was 37.4%. 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 TrustCo's capital requirements are met through the capital retention program. Previously, TrustCo has stated its intention to open two to four new branch offices each year for the next couple of years. These new branches and the related deposit growth anticipated from these locations will not require additional capital beyond that which is already existing within the Company, or that which will be developed and retained in the coming years. Total shareholders' equity at March 31, 1998 was $177.0 million, down slightly from the $178.8 million at year end 1997. The change in shareholders' equity between year end and the first quarter 1998 reflects a $1.4 million reduction in the net unrealized gain on securities available for sale, and a $2.8 million increase in treasury stock during the first quarter of 1998. <TABLE> TrustCo declared dividends of $0.275 so far in 1998, compared with $0.239 in 1997. These results represent a dividend payout ratio of 76.62% in 1998 and 73.87% in 1997. The Company achieved the following ratios as of March 31, 1998 and 1997: <CAPTION> - -------------------------------------------------------------------------------------------------------------------- March 31, Minimum Regulatory 1998 1997 Guidelines -------------------------------------------------- Tier 1 risk adjusted <S> <C> <C> <C> capital 13.01% 13.24 4.00 Total risk adjusted capital 14.30 14.53 8.00 - -------------------------------------------------------------------------------------------------------------------- </TABLE> In addition, at March 31, 1998 and 1997, the consolidated equity to total assets ratio (excluding the mark to market effect of securities available for sale) was 6.83% and 6.92%, respectively.
<TABLE> 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 appreciation, net of tax, in the available for sale portfolio of $15.0 million in 1998 and $4.9 million in 1997. The subtotals contained in the following table are the arithmetic totals of the items contained in that category. <CAPTION> First Quarter First Quarter 1998 1997 ------------------------------------------------------------------------------------------ Average Average Average Average Change in Variance Variance (dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate Income/ Change Change Assets Expense <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Commercial loans..............$ 189,731 $ 4,546 9.61% $ 217,127 $ 5,040 9.31% (494) (1,431) 937 Residential mortgage loans.... 914,262 18,626 8.15% 809,488 16,734 8.27% 1,892 3,446 (1,554) Home equity lines of credit .. 169,807 3,944 9.42% 183,405 4,139 9.15% (195) (844) 649 Installment loans............. 27,520 879 12.95% 30,770 993 13.09% (114) (104) (10) --------- ------ --------- ------ ----- ----- ----- Loans, net of unearned income. 1,301,320 27,995 8.63% 1,240,790 26,906 8.70% 1,089 1,067 22 Securities available for sale: U.S. Treasuries and agencies. 266,512 5,091 7.64% 383,115 7,467 7.80% (2,376) (2,230) (146) Mortgage-backed securities... 168,790 2,909 6.89% 81,782 1,589 7.77% 1,320 2,488 (1,168) States and political subdivisions........ 109,485 2,230 8.15% 93,992 1,896 8.07% 334 315 19 Other ....................... 61,119 928 6.09% 35,123 480 5.49% 448 391 57 --------- ------ --------- ------ ----- ----- ----- Total securities available for sale... 605,906 11,158 7.37% 594,012 11,432 7.70% (274) 964 (1,238) Federal funds sold............ 373,144 5,122 5.57% 326,678 4,322 5.37% 800 633 167 --------- ------ --------- ------ ----- ----- ----- Total Interest earning assets.... 2,280,370 44,275 7.79% 2,161,480 42,660 7.92% 1,615 2,664 (1,049) Allowance for loan losses..... (54,547) ------ (52,977) ------ ----- ----- ----- Cash and non-interest earning assets... 152,837 152,554 --------- -------- Total assets................$ 2,378,660 $2,261,057 ========= ========= Liabilities and shareholders' equity Deposits: Interest-bearing checking..$ 239,338 908 1.54% $ 234,084 $ 885 1.53% 23 20 3 Money market accounts...... 57,835 417 2.93% 61,149 442 2.93% (25) (24) (1) Savings...................... 651,644 5,115 3.18% 659,651 5,587 3.43% (472) (67) (405) CD's over $100 thousand...... 120,126 1,692 5.71% 94,284 1,322 5.69% 370 365 5 Other time deposits.......... 834,195 12,056 5.86% 789,130 11,335 5.83% 721 650 71 --------- ------ -------- ------ ----- ----- ----- Total time deposits......... 1,903,138 20,188 4.30% 1,838,298 19,571 4.32% 617 944 (327) Short-term borrowings......... 130,830 1,567 4.86% 113,764 1,317 4.70% 250 203 47 --------- ------ --------- ------ ----- ----- ----- Total interest-bearing liabilities.... 2,033,968 21,755 4.34% 1,952,062 20,888 4.34% 867 1,147 (280) Demand deposits............... 128,083 ------ 114,627 ------ ----- ----- ----- Other liabilities............. 40,682 32,225 Shareholders' equity.......... 175,927 162,143 --------- --------- Total liab. & shareholders' equity.....$ 2,378,660 $2,261,057 ========= ========= Net interest income........... 22,520 21,772 748 1,517 (769) ------ ------ ----- ----- ----- Net interest spread........... 3.45% 3.58% Net interest margin (net interest income to total interest earning assets)..... 3.92% 4.00% Tax equivalent adjustment..... 872 765 ------ ------ Net interest income per book $ 21,648 $ 21,007 ====== ====== -15- </TABLE>
Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the Company's interest rate risk position since December 31, 1997. 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.
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 13, 1998 By: /s/Robert A. McCormick ------------------------- Robert A. McCormick President and Chief Executive Officer Date: May 13, 1998 By: /s/Robert T. Cushing ------------------------ Robert T. Cushing Vice President and Chief Financial Officer