|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
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 and nine-month periods ended September 30, 2008, with
comparisons to 2007 as applicable. Net interest margin is presented
on a fully taxable equivalent basis in this discussion. The
consolidated interim financial statements and related notes, as well as the 2007
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.
Volatile
market conditions and deteriorating economic conditions in the United States and
around the world became more acute during the third quarter of 2008, and have
continued subsequent to quarter-end. Equity, credit, currency, credit
swap and commodities markets were among those that have been subject to
unprecedented levels of volatility. The willingness of lenders to
grant credit, including on an interbank level and to firms with significant
exposure to certain types of financial assets, declined
markedly. These conditions led to the bankruptcy, collapse or failure
of a number of firms, such as Lehman Brothers, Bear Stearns and Washington
Mutual. The United States and other governments around the world have
taken a variety of aggressive actions to attempt to ease these conditions,
including interest rate cuts, programs to provide liquidity to various markets,
direct purchase of equity stakes in banks and comprehensive
legislation. This market turmoil has exacerbated underlying economic
weakness, and has led to an increasingly negative outlook in regard to
employment and growth for the remainder of 2008 and into 2009.
TrustCo’s
conservative balance sheet and operating philosophy has enabled the Company to
avoid many of the direct consequences of the problems underlying this
crisis. Liquidity, credit quality, reserve coverage, capital and
expense control remain strong. However, to the extent that housing
values decline on a national basis, any housing lender is subject to some
increase in the level of risk. While the Company does not see a
significant increase in the inherent risk of loss in its loan portfolios at
September 30, 2008, should general housing prices and other economic measures in
the Company’s market areas deteriorate, the Company may experience an increase
in the level of risk and/or charge-offs in its loan portfolios. In
addition, the natural flight to quality that occurs in financial crisis, cuts in
targeted interest rates and liquidity injections by the Federal government have
served to reduce yields available on both short term liquidity (federal funds
and cash equivalents) as well as the low risk types of securities that the
Company typically invests in.
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 in the
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, (5) real estate and collateral
values, and (6) changes in market area and 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 and nine-months ended September 30, 2008 and
2007.
Adoption
of New Accounting Pronouncements
a)
Statements
of Financial Accounting Standards No. 159 “The Fair Value Option
for Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115”, and No. 157 “Fair Value Measurements”.
Effective
January 1, 2007 TrustCo elected early adoption of Statements of Financial
Accounting Standards (“SFAS”) No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No.
115” (SFAS No. 159), and No. 157 “Fair Value Measurements” (SFAS No.
157). SFAS No. 159, which was issued in February 2007, generally
permits the measurement of selected eligible financial instruments at fair value
at specified election dates. SFAS No. 157 generally establishes the
definition of fair value and expands disclosures about fair value
measurement. This statement establishes a hierarchy of the levels of
fair value measurement techniques. Upon adoption of SFAS No. 159,
TrustCo elected to apply the fair value option for certain U.S. government
sponsored enterprises securities with lower yields, which generally had longer
duration, that were classified in the available for sale portfolio totaling
approximately $517 million ($502 million at fair value). Prior to the
adoption of SFAS No. 159, the Company intended to hold these securities until a
market price recovery or possibly to maturity. The Company changed
its intent with respect to these securities and therefore recorded these losses
directly to undivided profits rather than current income based on the transition
provisions of SFAS No. 159 by electing the fair value option for these
securities. As a result, unrealized losses, net of taxes, of $8.6
million were directly recorded to undivided profits. This charge to undivided
profits had no overall impact on total shareholders’ equity because the fair
value adjustment had previously been included as an element of shareholders’
equity in the accumulated other comprehensive income (loss) account, net of
tax.
As a
result of TrustCo’s fair value measurement election for the above financial
instruments, TrustCo recorded $3.4 million of pre-tax unrealized trading gains
in its first quarter of 2007 earnings for the change in fair value of such
instruments from the effective election date of January 1, 2007 to March 31,
2007. Additionally, TrustCo sold in the third quarter of 2007 all of
these securities and recognized pre-tax trading losses of $2.8 million in that
quarter. The Company re-invested these proceeds by purchasing
securities, primarily U.S. government sponsored enterprises, for its trading
portfolio. As of September 30, 2008, $250.5 million of U.S.
government sponsored enterprises and $2.4 million of states and political
subdivisions securities were held in the trading portfolio. TrustCo
believes that its adoption of the standard has a positive impact on its ability
to manage its investment portfolio because it has enabled the Company to sell
the securities that it has elected the fair value option for without recording
other-than-temporary impairment on the remainder of the available-for-sale
portfolio. Additionally, recording the unrealized losses on these
securities directly to undivided profits as part of the transition adjustment
has benefited subsequent periods’ net income because the loss was not realized
in the income statement when the securities were sold.
As
already stated, the Company recorded a $8.6 million charge, net of tax, to
undivided profits as a result of adopting SFAS No. 159 as of January 1,
2007. Had the Company not adopted this new accounting standard and
reclassified the available for sale securities to trading
account assets as of that date, the charge to capital would have been recorded
as a charge
to net income in 2007.
In
determining the fair value for the trading account securities the Company
utilized an independent pricing service.
The
following table presents information relative to the assets identified for the
fair value option of accounting as of the initial implementation date of January
1, 2007:
|
|
Statement
of Condition 12/31/06 Prior to
adoption
|
|
|
Net
Loss recognized in undivided profits upon
adoption
|
|
|
Statement
of Condition after adoption of Fair Value
Option
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale transferred to trading account assets:
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
516,558 |
|
|
|
(14,313 |
) |
|
|
502,245 |
|
Unrealized
depreciation
|
|
|
(14,313 |
) |
|
|
14,313 |
|
|
-
|
|
Net
transferred to trading account assets
|
|
$ |
502,245 |
|
|
-
|
|
|
|
502,245 |
|
The
securities transferred to trading account assets as of January 1, 2007 were
included previously in the available for sale portfolio as government sponsored
enterprises.
TrustCo
determined that it would be appropriate to account for certain of the government
sponsored enterprises securities at fair value based upon the relatively low
interest rate on these bonds. Government sponsored enterprises bonds
held by Trustco Bank in the available for sale portfolio as of January 1, 2007
under a predetermined interest rate (generally 5.45% or below) were identified
as bonds to be recorded at fair value (the bonds also had an average life to
maturity of approximately 9 years). Interest on trading account
securities are recorded in the Consolidated Statements of Income based upon the
coupon of the underlying bond and the par value of the
securities. Unrealized gains and losses on the trading account
securities are recognized based upon the fair value at period end compared to
the beginning of that period.
After the
adoption of SFAS 159 as of January 1, 2007 there were $232.3 million of
remaining government sponsored enterprises obligations classified as available
for sale securities which had gross unrealized losses of $3.3
million. These securities are primarily higher yielding assets and
generally had shorter terms to final maturity. It is management’s
intention that government sponsored enterprises securities that remain in the
Available for Sale portfolio after the adoption of SFAS 159 will be held to
generate relatively higher yields or provide liquidity in the form of maturing
or called securities. Upon adoption of SFAS 159, the yield on the
securities in the available for sale portfolio ranged from 4.30% to 5.82%, and
had an average term to maturity of 7 years ranging from 2007 – 2019 final
maturity.
The
Company adopted Statement of Financial Accounting Standard No. 157 “Fair Value
Measurements,” (SFAS No. 157) on January 1, 2007. SFAS No. 157
establishes a three-level hierarchy for disclosure of fair value
measurements. The valuation hierarchy is based upon the transparency
of inputs to the valuation of an asset or liability as of the measurement
date. A financial instrument’s categorization within the valuation
hierarchy is based upon the lowest level of input that is significant to the
fair value measurement. The three levels are defined as
follows.
|
·
|
Level
1 – Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
·
|
Level
2 – Inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 – Inputs to the valuation methodology are unobservable and significant
to the fair value measurement.
|
The
following tables presents the financial instruments recorded at fair value by
the Company as of September 30, 2008 and December 31, 2007 on both a recurring
basis (securities available-for-sale and trading securities) and a non-recurring
basis (OREO loans). There were no financial instruments with fair
value estimates considered to be categorized as “Level 1” or “Level
3.” The adjustments to the fair value of OREO were not
significant
(dollars
in thousands)
|
|
Fair
value measurements at September 30, 2008 using:
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Total
carrying amount in statement of financial condition as of
9/30/08
|
|
|
Fair
value measurement as of 9/30/08
|
|
|
Significant
other observable inputs (Level 2)
|
|
Securities
available for sale
|
|
$ |
524,480 |
|
|
|
524,480 |
|
|
|
524,480 |
|
Trading
securities
|
|
|
252,879 |
|
|
|
252,879 |
|
|
|
252,879 |
|
Other
real estate owned
|
|
|
1,449 |
|
|
|
1,449 |
|
|
|
1,449 |
|
(dollars
in thousands)
|
|
Fair
value measurements at December 31, 2007 using:
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Total
carrying amount in statement of financial condition as of
12/31/07
|
|
|
Fair
value measurement as of 12/31/07
|
|
|
Significant
other observable inputs (Level 2)
|
|
Securities
available for sale
|
|
$ |
578,892 |
|
|
|
578,892 |
|
|
|
578,892 |
|
Trading
securities
|
|
|
465,151 |
|
|
|
465,151 |
|
|
|
465,151 |
|
Other
real estate owned
|
|
|
293 |
|
|
|
293 |
|
|
|
293 |
|
Assets
available for sale and trading account securities are fair valued utilizing an
independent pricing service for identical assets or significantly similar
securities. The pricing service uses a variety of techniques to
arrive at fair value including market maker bids, quotes and pricing
models. Inputs to the pricing models include recent trades, benchmark
interest rates, spreads and actual and projected cash flows. Other
real estate owned fair value is determined by observable comparable sales and
property valuation techniques. Interest and dividend income is
recorded on the accrual method and included in the income statement in the
respective investment class under total interest income.
b)
Statements
of Financial Accounting Standards No. 48 “Accounting for Uncertainty in Income
Taxes” as amended by FSB No. 48-1 “Definition of Settlement in FASB
Interpretation No. 48”.
TrustCo
adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”) as of January 1,
2007. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken on a tax return. As a result
of the Company’s adoption of FIN 48, there were no required adjustments to the
Company’s consolidated financial statements.
TrustCo
also adopted FASB Staff Position (FSP) No. 48-1 “Definition of Settlement in
FASB Interpretation No. 48 (FSP 48-1)”. FSP 48-1 provides guidance on
how to determine whether a tax position is effectively settled for the purpose
of recognizing previously unrecognized tax benefits. FSP 48-2 was
effective retroactively to January 1, 2007 and did not significantly impact the
Corporation’s financial statements.
In the
second quarter of 2008 the Company settled with the Internal Revenue Service and
New York State in regard to the audit of the Company’s tax returns through 2005
for the IRS and through 2006 for the State. As a result, the Company
reversed an accrual of interest expense of $311 thousand, net of federal taxes,
as an element of other expenses and $371 thousand, net of federal taxes, of
previously unrecognized tax benefit as a decrease to tax expense in the second
quarter of 2008. The settlement amount approximates the Company’s
prior estimate.
(dollars
in thousands)
|
|
|
|
|
|
|
|
Balance
January 1, 2008
|
|
$ |
4,023 |
|
|
|
|
|
|
Amount
paid to taxing authorities and amount reducing tax expense for the
nine-month period ended September 30, 2008
|
|
$ |
(2,839 |
) |
|
|
|
|
|
Balance
September 30, 2008
|
|
$ |
1,184 |
|
TrustCo
has implemented certain tax return positions that have not been fully recognized
for financial statement purposes based upon management’s evaluation of the
probability of the benefit being realized. Management will reevaluate
the necessity of these reserves after the effected tax returns have been subject
to audit.
The
Company does not believe the unrecognized tax benefit will significantly
increase or decrease within the next twelve months. It is reasonably
possible that a reduction in the estimate may occur, however, a quantification
of a reasonable range cannot be determined. Open Federal tax years
are 2006 and 2007, and for New York State the 2007 tax year is
open. During 2008, no interest or penalties were recorded on the
unrecognized tax benefit.
Overview
TrustCo
recorded net income of $9.0 million, or $0.119 of diluted earnings per share for
the three-months ended September 30, 2008, as compared to net income of $10.6
million or $0.141 of diluted earnings per share in the same period in
2007. For the nine-months ended September 30, 2008 TrustCo recorded
net income of $26.9 million or $0.356 of diluted earnings per share compared to
$31.1 million of net income and $0.413 of diluted earnings per share in the
first nine-months of 2008.
The
primary factors accounting for the year to date changes were:
|
·
|
Increase
in the average balance of interest earning assets of $128.5 million to
$3.32 billion for the first nine-months of 2008 compared to the same
period in 2007,
|
|
·
|
Increase
in the average balance of interest bearing liabilities of $119.3 million
to $2.89 billion for the first nine-months of 2008 as compared to
2007,
|
|
·
|
Decrease
in net interest margin from 3.10% for the first nine-months of 2007 to
3.00% for the nine-months of
2008,
|
|
·
|
Increase
in the provision for loan losses from zero for the first nine-months of
2007 to $2.0 million in the comparable period in
2008,
|
|
·
|
Increase
in noninterest income (excluding net gains on securities transactions and
net trading (losses) / gains) from $12.3 million for the first nine-months
of 2007 to $13.1 million for the comparable period in
2008. Excluded from noninterest income were $439 thousand of
net gains on securities transactions for the first nine-months of 2008
compared to $229 thousand for the same period in 2007, and $229 thousand
of net trading losses in the 2008 period compared to $906 thousand of net
gains in the first nine-months of 2007,
and
|
|
·
|
An
increase of $3.9 million in noninterest expense for the first nine-months
of 2008 as compared to the first nine-months of
2007.
|
Asset/Liability
Management
The
Company strives to generate its earnings capabilities through a mix of core
deposits, funding a prudent mix of earning assets. 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.
TrustCo’s
results are affected by a variety of factors including competitive and economic
conditions in the specific markets in which the company operates and more
generally in the national economy, financial market conditions and the
regulatory environment. Each of these is dynamic and changes in any
area can have an impact on TrustCo’s results. Included in the Annual
Report to Shareholders for the year ended December 31, 2007 is a description of
the effect interest rates had on the results for the year 2007 compared to
2006. Many of the same market factors discussed in the 2007 Annual
Report continued to have a significant impact on the quarterly and year to date
2008 results.
TrustCo
competes with other financial service providers based upon many factors
including quality of service, convenience of operations, and rates paid on
deposits and charged on loans. The absolute level of interest rates,
changes in rates and customers’ expectations with respect to the direction of
interest rates have a significant impact on the volume of loan and deposit
originations in any particular period.
One of
the most important interest rates used to control national economic policy is
the “federal funds” rate. The federal funds rate is the interest rate
at which depository institutions lend balances at the Federal Reserve to other
depository institutions. The Federal Reserve began reducing the
targeted federal funds rate from 5.25% beginning in the third quarter of 2007 to
the current 1.00% level on October 29, 2008. These actions, and other
economic conditions have led to a somewhat more positively sloped yield curve,
following persistently flat or mildly inverted curves over the prior couple of
years. In an inverted curve, short term rates are higher than long
term rates and in a positively sloped curve, long term rates are higher than
short term rates. The Federal Reserve has indicated that while it
remains concerned about economic conditions, uncertainty about the outlook for
inflation has increased, and that it “will act as needed to promote sustainable
economic growth and price stability.”
These
changes in interest rates have an effect on the Company relative to the interest
income on loans, securities and federal funds sold as well as on interest
expense on deposits and borrowings. New originations of residential
real estate loans and new purchases of longer-term investments are most affected
by the changes in longer term market interest rates such as the 10 year treasury
rate. The federal funds sold portfolio and other short term
investments are affected primarily by changes in the federal funds target
rate. Deposit interest rates are most affected by short term market
interest rates and competitive factors. Also, changes in interest
rates have an effect on the recorded balance of the securities available for
sale portfolio (with the offset to accumulated other comprehensive income) and
trading portfolio (with the offset to earnings), which are recorded at fair
value. Generally as interest rates increase the fair value of these
securities will decrease.
The
principal loan product for TrustCo is residential real estate
loans. Interest rates on new residential real estate loan
originations are influenced by the rates established by secondary market
participants such as Freddie Mac and Fannie Mae. Because TrustCo is a
portfolio lender and does not typically sell loans into the secondary market,
the Company establishes rates that management determines are appropriate in
relation to the long-term nature of a residential real estate loan, while
remaining competitive with the secondary market rates.
TrustCo
has not been directly significantly affected by the mortgage crisis effecting
some banks and financial institutions in the United States in recent
months. The crisis revolves around actual and anticipated higher
levels of delinquencies and defaults on mortgage loans, in many cases arising
from lenders with overly liberal underwriting standards, changes in the types of
mortgage loans offered, significant upward resets on adjustable rate loans,
fraud and other factors. The Company utilizes a traditional
underwriting process in evaluating loan applications, and since originated loans
are retained in portfolio there is a strong incentive to be conservative in
making credit decisions. For additional information concerning
TrustCo’s loan portfolio and non-performing loans, please refer to the
discussions under “Loans” and “Nonperforming Assets,”
respectively. Further, the Company does not rely on borrowed funds to
support its assets and maintains a very significant level of liquidity on the
asset side of the balance sheet.
For the
third quarter of 2008, the net interest margin decreased to 3.04% from 3.10% for
the third quarter of 2007. The margin was up from 2.87% in the second
quarter of 2008. The quarterly results reflect the following
significant factors:
-
|
The
average balance of securities available for sale, held-to-maturity
securities and trading securities decreased by $101 million and the
average yield decreased to 4.22% from 5.39% for the third quarter of 2008
compared to the same period in
2007.
|
-
|
The
average balance of federal funds sold and other short-term investments
increased by $6.7 million and the average yield decreased 314 basis points
to 2.07% in the third quarter of 2008 compared to the same period in 2007
. The decrease in yield on federal funds sold and other
short-term investments is attributable to the decrease in the target
federal funds rate.
|
-
|
The
average loan portfolio grew by $159.1 million to $2.04 billion and the
average yield decreased 50 basis points to 6.08% in the third quarter of
2008 compared to the same period in 2007. The decline in the
average yield reflects the decline in market interest rates on new loans
and variable rate loans.
|
-
|
The
average balance of interest bearing liabilities (primarily deposit
accounts) increased $70.1 million and the average rate paid decreased 102
basis points to 2.37% in the third quarter of 2008 compared to the same
period in 2007. The decline In the rate paid on interest
bearing liabilities reflects the decline in market interest
rates.
|
During
the third quarter of 2008 the Company continued to focus on its strategy to
expand the loan portfolio by offering competitive interest rates as the rate
environment changed. Management believes that the TrustCo residential
real estate loan product is very competitive compared to local and national
competitors. The widespread disruptions in the mortgage market have
not had a significant impact on TrustCo, partly because the Company has not
originated the types of loans that have been responsible for many of the
problems causing the disruptions as well as the fact that housing prices in the
Company’s primary markets have not experienced the declines realized in other
areas of the country. The withdrawal from the market of some of the
troubled lenders that did focus on subprime and similar loans has slightly
improved competitive conditions for the type of residential mortgage loans that
TrustCo focuses on. The average balance of federal funds sold and
other short-term investments increased slightly, reflecting a reduction in the
Company’s trading securities and continued deposit growth, partly
offset by an increase in loans and securities held to maturity. The
reduction in trading securities reflects insufficient premiums over federal
funds for the type of securities that the Company has held in that portfolio as
well as continued strong loan demand, thus funds have been used to support
growth of the loan portfolio and to slightly build the federal funds
position.
The
strategy on the funding side of the balance sheet continues to be to attract
deposit customers to the Company based upon a combination of service,
convenience and interest rate. The Company offered attractive
long-term deposit rates as part of a strategy to lengthen deposit
lives. This strategy has been successful. The decline in
the federal funds rate and slightly lessened competitive conditions has led to
lower deposit rates offered by most depository institutions, including TrustCo,
during much of the quarter. However, the decline in deposit costs has
lagged the decline in the Federal Funds target rate.
Earning
Assets
Total
average interest earning assets increased from $3.27 billion in the third
quarter of 2007 to $3.34 billion in the same period of 2008 with an average
yield of 6.05% in 2007 and 5.11% in 2008. Interest income on average
earning assets declined from $49.6 million in third quarter of 2007 to $42.6 in
the third quarter of 2008, on a tax equivalent basis, as the decline in yields
more than offset the growth in average earning assets.
Loans
The
average balance of loans was $2.04 billion in the third quarter of 2008 and
$1.88 billion in the comparable period in 2007. The yield on loans
decreased 50 basis points to 6.08%. The higher average balances more
than offset the lower yield, leading to a nominal increase in the interest
income on loans from $31.0 million in the third quarter of 2007 to $31.1 million
in the third quarter of 2008.
Compared
to the third quarter of 2007, the average balance of the loan portfolio during
the third quarter of 2008 increased in residential, home equity and commercial
loans, but declined in installment loans. The average balance of
residential mortgage loans was $1.37 billion in 2007 compared to $1.51 billion
in 2008, an increase of 10.5%. The average yield on residential
mortgage loans decreased by 11 basis points to 6.13% in the third quarter
of 2008 compared to 2007.
TrustCo
actively markets the residential loan products within its market
territories. Mortgage loan rates are affected by a number of factors
including rates on treasury securities, the federal funds rate and rates set by
competitors and secondary market participants. As noted earlier,
market interest rates have changed significantly as a result of national
economic policy in the United States, as well as due to disruptions in the
mortgage market. During this period of changing interest rates,
TrustCo aggressively marketed the unique aspects of its loan products thereby
attempting to create a differentiation from other lenders. These
unique aspects include extremely low closing costs, fast turn-around time on
loan approvals, no escrow or mortgage insurance requirements for qualified
borrowers and the fact that the Company typically holds these
loans in portfolio and does not sell them into the secondary
markets. Assuming a rise in long-term interest rates, the Company
would anticipate that the unique features of its loan product will continue to
attract customers in the residential mortgage loan area.
Commercial
loans, which consist primarily of loans secured by commercial real estate,
increased 5.1% to an average balance of $294.8 million in the third quarter of
2008 over the prior year. The average yield on this portfolio
decreased 105 basis points to 6.53% over the same period. The decline
in yield reflects the reduction in the federal funds rate and the associated
reduction in the prime rate.
The
average yield on home equity credit lines of credit decreased 219 basis points
to 4.99% during the third quarter of 2008 compared to 2007. The
decline in yield was primarily the result of the decline in the underlying index
rate in step with the decline in the fed funds rate. The average
balances of home equity lines increased 0.5% to $231.9 million in the third
quarter of 2008 as compared to the prior year.
Securities
Available-for-Sale
As
discussed previously, TrustCo adopted the accounting requirements of SFAS No.
159 and, as a result, reclassified assets from the available-for-sale portfolio
to the trading securities portfolio as of January 1, 2007.
The
average balance of the securities available-for-sale portfolio for the third
quarter of 2008 was $546.5 million compared to $544.1 million for the comparable
period in 2007. The average yield was 5.00% for the third quarter of
2008 and 5.48% for the third quarter of 2007. This portfolio is
primarily comprised of bonds issued by government sponsored enterprises (such as
Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), municipal bonds,
mortgage-backed securities and collateralized mortgage obligation
bonds. These securities are recorded at fair value with any
adjustment included in other comprehensive income.
Trading
Securities
The
average balance of trading securities for the third quarter of 2008 was $220.8
million, compared to $450.3 million in the comparable period of
2007. The average yield on trading securities was 2.57% for the third
quarter of 2008, compared to 5.22% for the comparable period in
2007. The decline in the average yield was due to the decline in
short term interest rates and the sale of securities in the third quarter of
2007. The securities held as trading securities are generally short
term. All of the securities in this portfolio are bonds issued by
government sponsored enterprises (such as Fannie Mae, the Federal Home Loan
Bank, and Freddie Mac) or municipal bonds). The balances for these
bonds are recorded at fair value with any such adjustment recorded to the income
statement. TrustCo does not own any equity securities of Fannie Mae
or Freddie Mac in any of its portfolios.
For the
third quarter of 2008, an average of $217.2 million of the total trading
portfolio of $220.8 million was composed of U.S. government sponsored
enterprises securities, with the remaining $3.6 million composed of short-term
municipal securities.
Held-to-Maturity
Securities
The
average balance of held-to-maturity securities was $140.7 million for the third
quarter of 2008 and the period-end balance was $110.7 million. For
the third quarter of 2007, the average balance of held-to-maturity securities
was $15.1 million. The average yield was 3.77% for the 2008 period
compared to 5.91% for the year earlier period. TrustCo expects to
hold the securities in this portfolio until they mature or are
called.
The
securities in this portfolio include bonds issued by government sponsored
enterprises as well as corporate bonds. The balances for these bonds
are recorded at amortized cost.
Securities
Portfolios
The
unrealized loss in the available-for-sale and held-to-maturity securities
portfolios increased from $4.7 million at June 30, 2008 to $5.6 million as of
September 30, 2008 primarily due to changes in interest rates and
spreads and not the result of increasing credit default risk. The
Company has the ability and intent to hold these securities until a market
recovery, or to maturity if necessary. Consequently no
other-than-temporary impairment charge has been recorded.
Federal
Funds Sold and Other Short-term Investments
The 2008
third quarter average balance of federal funds sold and other short-term
investments was $384.3 million, $6.6 million more than the $377.7 million
average in the same period in 2007. The portfolio yield decreased
from 5.21% in 2007 to 2.07% in 2008. 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 $3.0 million from $4.9 million in 2007 to $1.9 million in 2008, as
the decline in yield more than offset the slightly higher average
balance.
The
federal funds sold and other short-term investments portfolio is utilized to
generate additional interest income and liquidity as funds are waiting to be
deployed into the loan and securities portfolios.
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, demand deposits, interest-bearing
checking and time deposit accounts.
Total
average interest-bearing deposits (which includes interest-bearing checking,
money market accounts, savings, and certificates of deposit) increased from
$2.75 billion during the third quarter of 2007 to $2.81 billion in the third
quarter of 2008, and the average rate paid decreased from 3.37% for 2007 to
2.39% for 2008. Total interest expense on these deposits decreased
$6.5 million to $16.9 million in the third quarter of 2008 compared to the year
earlier period.
Average
short-term borrowings for the quarter were $100.1 million in 2008 compared to
$93.3 million in 2007. The average rate decreased during this time
period from 4.00% in 2007 to 1.92% in 2008. Rates on short-term
borrowings tend to change with the rates on the target Federal
Funds.
Net
Interest Income
Taxable
equivalent net interest income decreased by $23 thousand to $25.3 million in the
third quarter of 2008 as compared to the same period in 2007. The net
interest spread increased from 2.66% in the third quarter of 2007 to 2.74% in
2008. The net interest
margin decreased by 6 basis points to 3.04% for the third quarter of
2008.
Taxable
equivalent net interest income increased by $81 thousand to $74.7 million in the
first nine-months of 2008 as compared to the same period in 2007. The
net interest spread decreased from 2.67% in the first nine-months of 2007 to
2.65% in 2008. The net interest margin decreased by 11 basis points to 3.00% for
the first nine-months of 2008.
Nonperforming
Assets
Nonperforming
assets include nonperforming loans which are those loans in a nonaccrual status,
loans that have been restructured in a troubled debt restructuring, and loans
past due three payments 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 restructured loans. The following describes
the nonperforming assets of TrustCo as of September 30, 2008:
Nonperforming loans: Total nonperforming loans were
$23.2 million at September 30, 2008, an increase from the $20.5 million of
nonperforming loans at June 30, 2008. There were $22.4 million of
nonaccrual loans at September 30, 2008 compared to the $19.8 million at June 30,
2008. Restructured loans were $711 thousand at September 30, 2008
compared to $620 thousand at June 30, 2008. There were $110 thousand
of loans at September 30, 2008 that were past due 90 days or more and still
accruing interest, compared to $1 thousand at June 30, 2008. As of
December 31, 2007, total nonperforming loans were $12.7 million, including
nonaccrual loans of $12.1 million and restructured loans of $640
thousand. There were $19 thousand of loans that were past due 90 days
or more and still accruing interest at December 31, 2007.
At
September 30, 2008, nonperforming loans include a mix of commercial and
residential loans. Of total nonperforming loans of $23.2 million,
$18.6 million were residential real estate loans and $4.5 million were
commercial mortgages, compared to $15.8 million and $4.6 million, respectively
as of June 30, 2008 and to $10.6 million and $2.1 million respectively on
December 31, 2007.
As
previously noted, a significant percentage of NPLs are lower-risk residential
real estate loans (80% at September 30, 2008, 77% at June 30, 2008 and 83% at
December 31, 2007). The Bank’s loan loss experience on these loans
has been very strong with net charge-offs/(recoveries) of 0.14% for the first
nine months of 2008 (annualized) compared to 0.02% for
2007. Therefore, while the level of nonperforming loans has
increased, the Company does not believe this represents a significant level of
increased risk in the current loan portfolios.
Further,
as previously noted, an insignificant portion of the Company’s residential real
estate loans are in the Florida markets, which the Company has recently
entered. In 2007, loan origination in these areas was significantly
reduced and underwriting standards revised to correspond to the risks in these
markets. Management believes that these loans have been appropriately
written down or reserved for.
Ongoing
portfolio management is intended to result in early identification and
disengagement from deteriorating credits. TrustCo has a diversified loan
portfolio that includes a significant balance of residential mortgage loans to
borrowers in the Capital Region of New York and avoids concentrations to any one
borrower or any single industry. TrustCo has no advances to borrowers
or projects located outside the United States. TrustCo has increased
its efforts in regard to the identification and resolution of problem
loans, reflecting the increase in non-performing loans and the overall
weakness in economic conditions primarily in these markets.
Management
is aware of no other loans in the Bank’s portfolio that pose material risk of
the eventual non-collection of principal and interest. Also as of
September 30, 2008, there were no other loans classified for regulatory purposes
that management reasonably expects will materially impact future operating
results, liquidity, or capital resources.
TrustCo
has identified nonaccrual commercial and commercial real estate loans, as well
as all loans restructured under a troubled debt restructuring, as impaired
loans. There were $4.5 million of nonaccrual commercial mortgages
classified as impaired as of September 30, 2008 and $4.6 million as of June 30,
2008. There were $711 thousand of impaired retail loans at September
30, 2008, compared to $620 thousand at June 30, 2008. The average
balances of all impaired loans were $1.3 million during the third quarter of
2007 and $4.7 million in the third quarter of 2008. The Company
recognized approximately $19 thousand of interest income on these loans in the
third quarter of 2008 and approximately $154 thousand for all of
2007.
At
September 30, 2008 there was $1.4 million of foreclosed real estate as compared
to $1.6 million at June 30, 2008 and to $293 thousand at December 31,
2007.
During
the third quarter of 2008, there were no gross commercial loan charge offs and
$1.1 million of gross residential mortgage and consumer loan charge-offs as
compared with $167 thousand commercial loan charge-offs and $664 thousand of
residential mortgage and consumer loan charge-offs in the third quarter of
2007. For the first nine-months of 2008 there were $339 thousand of
gross commercial loan charge offs and $3.2 million of gross residential mortgage
and consumer loan charge-offs as compared with $722 thousand commercial loan
charge-offs and $2.1 million of residential mortgage and consumer loan
charge-offs in the first nine-months of 2007. Gross recoveries during
the third quarter of 2008 were $43 thousand for commercial loans and $247
thousand for residential mortgage and consumer loans, compared to $4 thousand
for commercial loans and $474 thousand for residential and consumer in the third
quarter of 2007. Gross recoveries during the first nine-months of
2008 were $495 thousand for commercial loans and $1.4 million for residential
mortgage and consumer loans, compared to $75 thousand for commercial loans and
$1.8 million in the first nine-months of 2007.
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 risk inherent in the loan
portfolio.
At
September 30, 2008, the allowance for loan losses was $35.0 million, which
represents a nominal increase from the June 30, 2008 balance of $34.8 million
and from $34.7 million as of December 31, 2007. The
allowance represents 1.68% of the loan portfolio as of September 30, 2008
compared to 1.73% at June 30, 2008. The allowance covered 1.79% of
the loan portfolio as of December 31, 2007. The decline in this ratio
compared to prior periods primarily reflects continued growth in the loan
portfolio. The Company considers that there is lower inherent risk of
loss for newer loans, and the fact that less risky residential loans continue to
constitute most of the non-accrual loans. Further, this slight
reduction reflects the Company’s continued strong net charge-off(recovery)
levels and the high percentage of nonperforming loans which are made up of
lower-risk residential real estate loans. These factors, resulting in
a slightly reduced percentage of allowance for loan losses to total loans are
partially offset by considerations of general economic trends throughout the
Company’s market areas.
The
provision for loan losses was $1.0 million for the quarter ended September 30,
2008 compared to zero for the third quarter in 2007 and $700 thousand for the
second quarter of 2008. Net charge-offs for the three-month period
ended September 30, 2008 were $807 thousand compared to net charge-offs of $353
thousand for the comparable period in 2007. Net charge-offs for the
nine-month period ended September 30, 2008 were $1.2 million compared to net
charge-offs of $934 thousand for the comparable period in 2007. The
provision for loan losses was increased on a quarter-to-date and year-to-date
basis primarily due to net charge-offs, considerations of general economic
trends throughout the company’s market areas and to a lesser extent the
increased non-performing loans. 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
recoveries,
|
|
·
|
The
growth in the loan portfolio and the implication that has in relation to
the economic climate in the bank’s business territory,
and
|
|
·
|
The
economic environment in the Company’s market
areas.
|
Management
continues to monitor these factors in determining future provisions or credits
for loan losses in relation to the economic environment, loan charge-offs,
recoveries and the level and trends of nonperforming loans.
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 third quarter of 2008 was $4.8 million, equal to the
year earlier period. Excluding trading gains and losses and net
securities transactions, non-interest income increased from $4.2 million in the
third quarter of 2007 to $4.8 million in the third quarter of
2008. Trading gains and net gains on securities transactions were
$531 thousand in the third quarter of 2007, compared to $35 thousand in the
third quarter of 2008. For the first nine-months of 2008 total
noninterest income was $13.3 million compared to $13.4 million in the comparable
period of 2007. The decline was due to trading losses of
$229 thousand in the 2008 period, compared to gains of $906 thousand in the 2007
period.
Trust
department income decreased 8.44% to $1.3 million for the third quarter of 2008
compared to the third quarter of 2007. Trust department assets under management
were $884 million at September 30, 2008 compared to $885 million at June 30,
2008 and $914 million at December 31, 2007. The decline in trust
assets and revenue was due primarily to declines in equity market
valuations. For the nine-months ended September 30, 2008, trust
income was $4.1 million, down $166 thousand from the prior year.
Fees for
other services to customers plus other income increased by 23.0% to $3.5 million
between the third quarter of 2007 and the comparable period in
2008. The increase is the result of changes in fee policies as well
as fees being charged on a larger customer base. For the first
nine-months of 2008 these revenue lines were $9.0 million, up 11.4% compared to
the prior year.
The
Company recognized $14 thousand of net trading gains in the third quarter
of 2008, compared to gains of $305 thousand in the same period in
2007. A net gain of $21 thousand was reported in the third quarter
2008 related to net securities transactions on securities available for sale,
compared to a gain of $226 thousand a year earlier. In total, the net
of gains and losses in the third quarter of 2008 in the available for sale and
trading portfolios, relative to the same period in 2007, resulted in a decline
of $496 thousand in non-interest income. For the first nine-months of
2008, trading losses of $229 thousand were recorded, compared to net trading
gains of $906 thousand in 2007 and net securities gains of $439 thousand were
recorded in the first nine months of 2008 compared to $229 thousand in
2007.
Noninterest
Expenses
Total
noninterest expense increased from $13.6 million for the three months ended
September 30, 2007 to $14.7 million for the three months ended September 30,
2008, with increases in each major expense category except “other”
expense. Salaries and employee benefits increased $531 thousand to
$5.8 million for 2008. Higher salaries and benefits are primarily due
to increased staffing related to the branch expansion initiative and the impact
of extended service hours. Net occupancy expense increased $329
thousand to $3.0 million during the third quarter of 2008. The
increase is the result of new branch opening costs and the increased cost of
utilities and taxes on branch locations. Equipment expense increased
by $44 thousand to $1.0 million, also reflecting new offices and general
growth. Professional services and outsourced services were up a
combined $165 thousand to $2.3 million while other expenses declined by $23
thousand to $2.7 million.
Total
noninterest expense increased from $39.8 million for the nine-months ended
September 30, 2007 to $43.6 million for the nine-months ended September 30,
2008, with increases in each major expense category except
other. Salaries and employee benefits increased $1.9 million to $16.9
million for 2008. Higher salaries and benefits are primarily due to
increased staffing related to the branch expansion initiative and the impact of
extended service hours. Net occupancy expense increased $1.5 million
to $9.0 million during the first nine months of 2008. The increase is
the result of new branch lease costs and the increased cost of utilities and
taxes on branch locations. Equipment expense rose $569 thousand to
$3.1 million. Other expense categories reflected trends for the first
nine months of 2008 that were similar to the third quarter of 2008.
Income
Taxes
In the
third quarter of 2008, TrustCo recognized income tax expense of $4.7 million as
compared to $5.1 million for the same period in 2007. The effective
tax rates were 34.4% and 32.3% for the third quarters of 2008 and 2007,
respectively. For the nine-months ended September 30, 2008 $13.3
million of income tax expense was recorded compared to $14.9 million recorded
for the same period in 2007. The effective tax rates were 33.0% and
32.4% for the nine-months ended September 30, 2008 and 2007,
respectively. The tax expense on the Company’s income was different
than tax expense at the statutory rate of 35%, due primarily to tax exempt
income and the effect of state income taxes.
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 September 30, 2008 was $241.1 million, compared to
$237.1 million at year-end 2007. TrustCo declared a dividend of $0.110 per share
in the third quarter of 2008. This results in a dividend payout ratio
of 92.4% based on third quarter 2008 earnings per share of $0.119.
The
Company achieved the following ratios as of September 30, 2008 and
2007:
|
|
September
30,
|
|
|
Minimum
Regulatory
|
|
|
|
2008
|
|
|
2007
|
|
|
Guidelines
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 risk adjusted capital
|
|
|
12.62%
|
|
|
|
13.44%
|
|
|
|
4.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk adjusted capital
|
|
|
13.88%
|
|
|
|
14.70%
|
|
|
|
8.00%
|
|
In
addition, at September 30, 2008 and 2007, the consolidated equity to total
assets ratio (excluding the mark to market effect of securities available for
sale) was 6.91% and 6.93%, respectively, compared to a minimum regulatory
requirement of 4.00%.
The
decrease in capital ratios reflects growth in the overall consolidated balance
sheet.
The
recently enacted Emergency Economic Stabilization Act of 2008 (“EESA”) includes
a program that allows certain banks, including TrustCo, to apply to the U.S.
Treasury Department and our principal bank regulator (the Office of Thrift
Supervision (“OTS”), if they desire, for an investment by the Treasury of
capital in the Company’s preferred stock. The amount of such
investment would be equal to between 1 percent and 3 percent of the Company’s
risk-weighted assets, and would qualify as Tier 1 capital. The
program is designed to attract broad participation by healthy institutions as a
means to stabilize the financial system and increase lending for the benefit of
the economy and the people of the United States. Management is
evaluating the costs and benefits of participating in this plan. As
illustrated in the table above, TrustCo’s existing capital ratios are well in
excess of all regulatory requirements.
Critical
Accounting Policies:
Pursuant
to SEC guidance, management of the Company is encouraged to evaluate and
disclose those accounting policies that are judged to be critical policies -
those most important to the portrayal of the Company’s financial condition and
results, and that require management’s most difficult subjective or complex
judgments.
Management
considers the accounting policy relating to the allowance for loan losses to be
a critical accounting policy given the inherent uncertainty in evaluating the
levels of the allowance required to cover the inherent risk of losses in the
portfolio and the material effect that such judgments can have on the results of
operations. Included in Note 1 to the Consolidated Financial Statements
contained in the Company’s 2007 Annual Report on Form 10-K is a description of
the significant accounting policies that are utilized by the Company in the
preparation of the Consolidated Financial Statements.
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 liabilities
of TrustCo (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 and held-to-maturity are
calculated using amortized costs for these securities. The average
balance of trading securities is calculated using fair value for these
securities. Included in the average balance of shareholders' equity is
unrealized depreciation, net of tax, in the available for sale portfolio of $2.9
million in 2008 and $6.3 million in 2007. The subtotals contained in
the following table are the arithmetic totals of the items contained in that
category. Increases and decreases in interest income and
expense due to both rate and volume have been allocated to the
categories of variances (volume and rate) based on the percentage relationship
of such variances to each other.
|
|
Three
Month
|
|
|
2008
|
|
|
|
|
|
Three
Month
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
Average
Balance
|
|
|
Interest
|
|
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/
|
|
|
Change
|
|
|
Change
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasuries
|
|
$ |
2,027 |
|
|
|
10 |
|
|
|
1.99
|
% |
|
$ |
0 |
|
|
$ |
0 |
|
|
|
0.00
|
% |
|
|
10 |
|
|
|
10 |
|
|
|
- |
|
U.
S. Gov't Sponsored Enterprises
|
|
|
284,470 |
|
|
|
3,334 |
|
|
|
4.69
|
% |
|
|
244,831 |
|
|
|
3,300 |
|
|
|
5.39
|
% |
|
|
34 |
|
|
|
1,921 |
|
|
|
(1,887 |
) |
Mortgage-backed
securities and collateralized mortgage obligations
|
|
|
145,757 |
|
|
|
1,700 |
|
|
|
4.67
|
% |
|
|
159,362 |
|
|
|
1,857 |
|
|
|
4.66
|
% |
|
|
(157 |
) |
|
|
(184 |
) |
|
|
27 |
|
States
and political subdivisions
|
|
|
104,200 |
|
|
|
1,714 |
|
|
|
6.58
|
% |
|
|
126,643 |
|
|
|
2,154 |
|
|
|
6.80
|
% |
|
|
(440 |
) |
|
|
(372 |
) |
|
|
(68 |
) |
Other
|
|
|
10,030 |
|
|
|
74 |
|
|
|
2.94
|
% |
|
|
13,244 |
|
|
|
147 |
|
|
|
4.41
|
% |
|
|
(73 |
) |
|
|
(31 |
) |
|
|
(42 |
) |
Total
securities available for sale
|
|
|
546,484 |
|
|
|
6,832 |
|
|
|
5.00
|
% |
|
|
544,080 |
|
|
|
7,458 |
|
|
|
5.48
|
% |
|
|
(626 |
) |
|
|
1,344 |
|
|
|
(1,970 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and other short-term Investments
|
|
|
384,348 |
|
|
|
1,999 |
|
|
|
2.07
|
% |
|
|
377,659 |
|
|
|
4,949 |
|
|
|
5.21
|
% |
|
|
(2,950 |
) |
|
|
593 |
|
|
|
(3,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.
S. Gov't Sponsored Enterprises
|
|
|
217,189 |
|
|
|
1,395 |
|
|
|
2.57
|
% |
|
|
450,283 |
|
|
|
5,921 |
|
|
|
5.22
|
% |
|
|
(4,526 |
) |
|
|
(2,285 |
) |
|
|
(2,241 |
) |
States
and political subdivisions
|
|
|
3,611 |
|
|
|
22 |
|
|
|
2.45
|
% |
|
|
0 |
|
|
|
0 |
|
|
|
0.00
|
% |
|
|
22 |
|
|
|
22 |
|
|
|
- |
|
Total
Trading Securities
|
|
|
220,800 |
|
|
|
1,417 |
|
|
|
2.57
|
% |
|
|
450,283 |
|
|
|
5,921 |
|
|
|
5.22 |
|
|
|
(4,504 |
) |
|
|
(2,263 |
) |
|
|
(2,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held
to Maturity Agencies
|
|
|
99,069 |
|
|
|
840 |
|
|
|
3.39
|
% |
|
|
15,054 |
|
|
|
224 |
|
|
|
5.91
|
% |
|
|
616 |
|
|
|
1,277 |
|
|
|
(661 |
) |
Held
to Maturity Corp. Bonds
|
|
|
41,621 |
|
|
|
486 |
|
|
|
4.67
|
% |
|
|
0 |
|
|
|
0 |
|
|
|
0.00
|
% |
|
|
486 |
|
|
|
486 |
|
|
|
- |
|
Total
Held to Maturities
|
|
|
140,690 |
|
|
|
1,326 |
|
|
|
3.77
|
% |
|
|
15,054 |
|
|
|
224 |
|
|
|
5.91
|
% |
|
|
1,102 |
|
|
|
1,763 |
|
|
|
(661 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Loans
|
|
|
294,831 |
|
|
|
4,815 |
|
|
|
6.53
|
% |
|
|
280,410 |
|
|
|
5,320 |
|
|
|
7.58
|
% |
|
|
(505 |
) |
|
|
1,458 |
|
|
|
(1,963 |
) |
Residential
mortgage loans
|
|
|
1,511,412 |
|
|
|
23,153 |
|
|
|
6.13
|
% |
|
|
1,367,451 |
|
|
|
21,332 |
|
|
|
6.24
|
% |
|
|
1,821 |
|
|
|
4,137 |
|
|
|
(2,316 |
) |
Home
equity lines of credit
|
|
|
231,869 |
|
|
|
2,906 |
|
|
|
4.99
|
% |
|
|
230,651 |
|
|
|
4,176 |
|
|
|
7.18
|
% |
|
|
(1,270 |
) |
|
|
150 |
|
|
|
(1,420 |
) |
Installment
loans
|
|
|
5,436 |
|
|
|
198 |
|
|
|
14.50
|
% |
|
|
5,947 |
|
|
|
219 |
|
|
|
14.59
|
% |
|
|
(21 |
) |
|
|
(20 |
) |
|
|
(1 |
) |
Loans,
net of unearned income
|
|
|
2,043,548 |
|
|
|
31,072 |
|
|
|
6.08
|
% |
|
|
1,884,459 |
|
|
|
31,047 |
|
|
|
6.58
|
% |
|
|
25 |
|
|
|
5,725 |
|
|
|
(5,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest earning assets
|
|
|
3,335,870 |
|
|
|
42,646 |
|
|
|
5.11
|
% |
|
|
3,271,535 |
|
|
|
49,599 |
|
|
|
6.05
|
% |
|
|
(6,953 |
) |
|
|
7,162 |
|
|
|
(14,115 |
) |
Allowance
for loan losses
|
|
|
(34,859 |
) |
|
|
|
|
|
|
|
|
|
|
(35,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
& non-interest earning assets
|
|
|
130,844 |
|
|
|
|
|
|
|
|
|
|
|
119,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,431,855 |
|
|
|
|
|
|
|
|
|
|
$ |
3,355,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Bearing Checking Accounts
|
|
$ |
316,471 |
|
|
|
187 |
|
|
|
0.23
|
% |
|
$ |
285,001 |
|
|
|
220 |
|
|
|
0.31
|
% |
|
|
(33 |
) |
|
|
127 |
|
|
|
(160 |
) |
Money
market accounts
|
|
|
303,613 |
|
|
|
1,296 |
|
|
|
1.70
|
% |
|
|
353,458 |
|
|
|
3,655 |
|
|
|
4.10
|
% |
|
|
(2,359 |
) |
|
|
(458 |
) |
|
|
(1,901 |
) |
Savings
|
|
|
619,039 |
|
|
|
883 |
|
|
|
0.57
|
% |
|
|
638,838 |
|
|
|
2,253 |
|
|
|
1.40
|
% |
|
|
(1,370 |
) |
|
|
(68 |
) |
|
|
(1,302 |
) |
Time
deposits
|
|
|
1,571,659 |
|
|
|
14,505 |
|
|
|
3.67
|
% |
|
|
1,470,216 |
|
|
|
17,214 |
|
|
|
4.65
|
% |
|
|
(2,709 |
) |
|
|
6,439 |
|
|
|
(9,148 |
) |
Total
interest bearing deposits
|
|
|
2,810,782 |
|
|
|
16,871 |
|
|
|
2.39
|
% |
|
|
2,747,513 |
|
|
|
23,342 |
|
|
|
3.37
|
% |
|
|
(6,471 |
) |
|
|
6,040 |
|
|
|
(12,511 |
) |
Short-term
borrowings
|
|
|
100,107 |
|
|
|
483 |
|
|
|
1.92
|
% |
|
|
93,279 |
|
|
|
941 |
|
|
|
4.00
|
% |
|
|
(458 |
) |
|
|
422 |
|
|
|
(880 |
) |
Long-term
debt
|
|
|
8 |
|
|
|
0 |
|
|
|
5.17
|
% |
|
|
39 |
|
|
|
1 |
|
|
|
5.17
|
% |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
- |
|
Total
Interest Bearing Liabilities
|
|
|
2,910,897 |
|
|
|
17,354 |
|
|
|
2.37
|
% |
|
|
2,840,831 |
|
|
|
24,284 |
|
|
|
3.39
|
% |
|
|
(6,930 |
) |
|
|
6,461 |
|
|
|
(13,391 |
) |
Demand
deposits
|
|
|
262,239 |
|
|
|
|
|
|
|
|
|
|
|
261,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
20,366 |
|
|
|
|
|
|
|
|
|
|
|
24,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
238,353 |
|
|
|
|
|
|
|
|
|
|
|
228,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liab. & shareholders' equity
|
|
$ |
3,431,855 |
|
|
|
|
|
|
|
|
|
|
$ |
3,355,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income , tax equivalent
|
|
|
|
|
|
|
25,292 |
|
|
|
|
|
|
|
|
|
|
|
25,315 |
|
|
|
|
|
|
|
(23 |
) |
|
|
701 |
|
|
|
(724 |
) |
Net
Interest Spread
|
|
|
|
|
|
|
|
|
|
|
2.74
|
% |
|
|
|
|
|
|
|
|
|
|
2.66
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest margin (net interest income to total interest earning
assets)
|
|
|
|
|
|
|
|
|
|
|
3.04
|
% |
|
|
|
|
|
|
|
|
|
|
3.10
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
equivalent adjustment
|
|
|
|
|
|
|
(593 |
) |
|
|
|
|
|
|
|
|
|
|
(760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
|
|
|
|
|
|
|
24,699 |
|
|
|
|
|
|
|
|
|
|
|
24,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 liabilities
of TrustCo (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 and held-to-maturity are calculated using
amortized costs for these securities. The average balance of trading
securities is calculated using fair value for these securities. Included in the
average balance of shareholders' equity is unrealized depreciation, net of tax,
in the available for sale portfolio of $1.2 million in 2008 and $6.1 million in
2007. The subtotals contained in the following table are the
arithmetic totals of the items contained in that category. Increases
and decreases in interest income and expense due to both rate and
volume have been allocated to the categories of variances (volume and rate)
based on the percentage relationship of such variances to each
other.
|
|
Nine
Month
|
|
|
2008
|
|
|
|
|
|
Nine
Month
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Rate
|
|
|
Change
in Interest
|
|
|
Variance
Balance
|
|
|
Variance
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/
|
|
|
Change
|
|
|
Change
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasuries
|
|
$ |
1,676 |
|
|
|
45 |
|
|
|
3.55
|
% |
|
$ |
302 |
|
|
$ |
11 |
|
|
|
4.74
|
% |
|
|
34 |
|
|
|
39 |
|
|
|
(5 |
) |
U.
S. Gov't Sponsored Enterprises
|
|
|
255,038 |
|
|
|
9,425 |
|
|
|
4.93
|
% |
|
|
223,036 |
|
|
|
8,899 |
|
|
|
5.32
|
% |
|
|
526 |
|
|
|
1,500 |
|
|
|
(974 |
) |
Mortgage-backed
securities and collateralized mortgage obligations
|
|
|
149,353 |
|
|
|
5,211 |
|
|
|
4.65
|
% |
|
|
163,820 |
|
|
|
5,737 |
|
|
|
4.67
|
% |
|
|
(526 |
) |
|
|
(502 |
) |
|
|
(24 |
) |
States
and political subdivisions
|
|
|
116,404 |
|
|
|
5,869 |
|
|
|
6.72
|
% |
|
|
128,047 |
|
|
|
6,540 |
|
|
|
6.81
|
% |
|
|
(671 |
) |
|
|
(586 |
) |
|
|
(85 |
) |
Other
|
|
|
11,022 |
|
|
|
439 |
|
|
|
5.32
|
% |
|
|
12,966 |
|
|
|
497 |
|
|
|
5.12
|
% |
|
|
(58 |
) |
|
|
(87 |
) |
|
|
29 |
|
Total
securities available for sale
|
|
|
533,493 |
|
|
|
20,989 |
|
|
|
5.25
|
% |
|
|
528,171 |
|
|
|
21,684 |
|
|
|
5.47
|
% |
|
|
(695 |
) |
|
|
364 |
|
|
|
(1,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and other short-term Investments
|
|
|
422,701 |
|
|
|
8,017 |
|
|
|
2.53
|
% |
|
|
388,475 |
|
|
|
15,244 |
|
|
|
5.24
|
% |
|
|
(7,227 |
) |
|
|
2,013 |
|
|
|
(9,240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.
S. Gov't Sponsored Enterprises
|
|
|
287,803 |
|
|
|
8,167 |
|
|
|
3.78
|
% |
|
|
440,512 |
|
|
|
17,571 |
|
|
|
5.32
|
% |
|
|
(9,404 |
) |
|
|
(5,125 |
) |
|
|
(4,279 |
) |
States
and political subdivisions
|
|
|
4,953 |
|
|
|
109 |
|
|
|
2.94
|
% |
|
|
0 |
|
|
|
0 |
|
|
|
0.00
|
% |
|
|
109 |
|
|
|
109 |
|
|
|
- |
|
Total
Trading Securities
|
|
|
292,756 |
|
|
|
8,276 |
|
|
|
3.77
|
% |
|
|
440,512 |
|
|
|
17,571 |
|
|
|
5.32
|
% |
|
|
(9,295 |
) |
|
|
(5,016 |
) |
|
|
(4,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held
to Maturity Agencies
|
|
|
57,843 |
|
|
|
1,573 |
|
|
|
3.63
|
% |
|
|
5,073 |
|
|
|
224 |
|
|
|
5.89
|
% |
|
|
1,349 |
|
|
|
1,522 |
|
|
|
(173 |
) |
Held
to Maturity Corp. Bonds
|
|
|
21,851 |
|
|
|
763 |
|
|
|
4.66
|
% |
|
|
0 |
|
|
|
0 |
|
|
|
0.00
|
% |
|
|
763 |
|
|
|
763 |
|
|
|
- |
|
Total
Held to Maturities
|
|
|
79,694 |
|
|
|
2,336 |
|
|
|
3.91
|
% |
|
|
5,073 |
|
|
|
224 |
|
|
|
5.89
|
% |
|
|
2,112 |
|
|
|
2,285 |
|
|
|
(173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Loans
|
|
|
290,050 |
|
|
|
14,472 |
|
|
|
6.65
|
% |
|
|
272,865 |
|
|
|
15,455 |
|
|
|
7.55
|
% |
|
|
(983 |
) |
|
|
1,358 |
|
|
|
(2,341 |
) |
Residential
mortgage loans
|
|
|
1,466,543 |
|
|
|
67,625 |
|
|
|
6.15
|
% |
|
|
1,313,538 |
|
|
|
61,310 |
|
|
|
6.22
|
% |
|
|
6,315 |
|
|
|
7,436 |
|
|
|
(1,121 |
) |
Home
equity lines of credit
|
|
|
229,414 |
|
|
|
9,198 |
|
|
|
5.36
|
% |
|
|
237,173 |
|
|
|
11,873 |
|
|
|
6.69
|
% |
|
|
(2,675 |
) |
|
|
(378 |
) |
|
|
(2,297 |
) |
Installment
loans
|
|
|
5,406 |
|
|
|
600 |
|
|
|
14.83
|
% |
|
|
5,741 |
|
|
|
622 |
|
|
|
14.49
|
% |
|
|
(22 |
) |
|
|
(44 |
) |
|
|
22 |
|
Loans,
net of unearned income
|
|
|
1,991,413 |
|
|
|
91,895 |
|
|
|
6.15
|
% |
|
|
1,829,317 |
|
|
|
89,260 |
|
|
|
6.51
|
% |
|
|
2,635 |
|
|
|
8,372 |
|
|
|
(5,737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest earning assets
|
|
|
3,320,057 |
|
|
|
131,513 |
|
|
|
5.28
|
% |
|
|
3,191,548 |
|
|
|
143,983 |
|
|
|
6.02
|
% |
|
|
(12,470 |
) |
|
|
8,018 |
|
|
|
(20,488 |
) |
Allowance
for loan losses
|
|
|
(34,688 |
) |
|
|
|
|
|
|
|
|
|
|
(35,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
& non-interest earning assets
|
|
|
126,469 |
|
|
|
|
|
|
|
|
|
|
|
126,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,411,838 |
|
|
|
|
|
|
|
|
|
|
$ |
3,282,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Bearing Checking Accounts
|
|
$ |
296,927 |
|
|
|
563 |
|
|
|
0.25
|
% |
|
$ |
281,979 |
|
|
|
635 |
|
|
|
0.30
|
% |
|
|
(72 |
) |
|
|
51 |
|
|
|
(123 |
) |
Money
market accounts
|
|
|
318,811 |
|
|
|
4,669 |
|
|
|
1.96
|
% |
|
|
336,445 |
|
|
|
10,370 |
|
|
|
4.12
|
% |
|
|
(5,701 |
) |
|
|
(518 |
) |
|
|
(5,183 |
) |
Savings
|
|
|
614,718 |
|
|
|
3,149 |
|
|
|
0.68
|
% |
|
|
649,060 |
|
|
|
7,074 |
|
|
|
1.46
|
% |
|
|
(3,925 |
) |
|
|
(354 |
) |
|
|
(3,571 |
) |
Time
deposits
|
|
|
1,565,843 |
|
|
|
46,970 |
|
|
|
4.01
|
% |
|
|
1,408,988 |
|
|
|
48,406 |
|
|
|
4.59
|
% |
|
|
(1,436 |
) |
|
|
6,982 |
|
|
|
(8,418 |
) |
Total
interest bearing deposits
|
|
|
2,796,299 |
|
|
|
55,351 |
|
|
|
2.64
|
% |
|
|
2,676,472 |
|
|
|
66,485 |
|
|
|
3.32
|
% |
|
|
(11,134 |
) |
|
|
6,161 |
|
|
|
(17,295 |
) |
Short-term
borrowings
|
|
|
95,300 |
|
|
|
1,507 |
|
|
|
2.11
|
% |
|
|
95,843 |
|
|
|
2,923 |
|
|
|
4.08
|
% |
|
|
(1,416 |
) |
|
|
(16 |
) |
|
|
(1,400 |
) |
Long-term
debt
|
|
|
16 |
|
|
|
1 |
|
|
|
5.24
|
% |
|
|
46 |
|
|
|
2 |
|
|
|
5.24
|
% |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
- |
|
Total
Interest Bearing Liabilities
|
|
|
2,891,615 |
|
|
|
56,859 |
|
|
|
2.63
|
% |
|
|
2,772,361 |
|
|
|
69,410 |
|
|
|
3.35
|
% |
|
|
(12,551 |
) |
|
|
6,144 |
|
|
|
(18,695 |
) |
Demand
deposits
|
|
|
260,644 |
|
|
|
|
|
|
|
|
|
|
|
253,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
21,116 |
|
|
|
|
|
|
|
|
|
|
|
23,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
238,463 |
|
|
|
|
|
|
|
|
|
|
|
232,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liab. & shareholders' equity
|
|
$ |
3,411,838 |
|
|
|
|
|
|
|
|
|
|
$ |
3,282,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income , tax equivalent
|
|
|
|
|
|
|
74,654 |
|
|
|
|
|
|
|
|
|
|
|
74,573 |
|
|
|
|
|
|
|
81 |
|
|
|
1,874 |
|
|
|
(1,793 |
) |
Net
Interest Spread
|
|
|
|
|
|
|
|
|
|
|
2.65
|
% |
|
|
|
|
|
|
|
|
|
|
2.67
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest margin (net interest income to total interest earning
assets)
|
|
|
|
|
|
|
|
|
|
|
3.00
|
% |
|
|
|
|
|
|
|
|
|
|
3.11
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
equivalent adjustment
|
|
|
|
|
|
|
(2,084 |
) |
|
|
|
|
|
|
|
|
|
|
(2,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
|
|
|
|
|
|
|
72,570 |
|
|
|
|
|
|
|
|
|
|
|
72,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
As
detailed in the Annual Report to Shareholders as of December 31, 2007 the
Company is subject to interest rate risk as its principal market
risk. As noted in detail throughout this Management’s Discussion and
Analysis for the three and nine-months ended September 30, 2008, the Company
continues to respond to changes in interest rates in a fashion to position the
Company to meet both short term earning goals but to also allow the Company to
respond to changes in interest rates in the future. Consequently the
year-to-date average balance of federal funds sold and other short-term
investments has increased to $422.7 million in 2008 from $388.5 million in
2007. As investment opportunities present themselves, management
plans to continue to invest funds from the federal funds sold and other
short-term investment portfolio into the trading securities, securities
available for sale, held-to-maturity and loan portfolios. This trend
is expected to continue for the remainder of the year.
The
Company had $252.9 million of trading account assets at September 30, 2008 and
$465.2 million as of December 31, 2007. These trading account assets
have been recorded at their fair value as determined by quoted market prices
from a third party pricing service. The trading account securities at
September 30, 2008 were substantially all fixed rate callable bonds issued by
government sponsored enterprises with a final average maturity of approximately
4 months and weighted average yield of 2.67%. Changes in market
interest rates could affect the fair value of this portfolio and net trading
gains and losses recorded in periodic earnings results.
An
evaluation was carried out under the supervision and with the participation of
the Company’s management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by this report.
The
Company maintains disclosure controls and procedures (as that term is defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange
Act”)) designed to ensure that information required to be disclosed in the
reports that the Company files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. Based upon
this evaluation of those disclosure controls and procedures, the Chief Executive
and Chief Financial Officer of the Company concluded, as of the end of the
period covered by this report, that the Company’s disclosure controls and
procedures were effective to ensure that information required
to be disclosed in the reports the Company files and submits under the Exchange
Act is recorded, processed, summarized and reported as and when
required.
In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures. Further, no evaluation of a cost-effective system of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, will be detected.
There
have been no changes in internal control over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter to which
this report relates that have materially affected or are reasonably likely to
materially affect, the internal control over financial
reporting.
PART
II OTHER
INFORMATION
None.
In
addition to the risk factors as discussed in The Annual Report on Form 10K for
the year ended December 31, 2007 the following factors should be
considered.
There
can be no assurance the recently enacted legislation authorizing the U.S.
government to purchase large amounts of illiquid mortgages or invest directly in
U.S. financial institutions will help stabilize the U.S. financial
system.
There can
be no assurance as to the actual impact that the Emergency Economic Stability
Act of 2008 (“EESA”), and the programs implemented pursuant to the EESA,
including the Capital Purchase Program and Temporary Liquidity Guarantee
Program, will have on the financial markets, including the extreme levels of
volatility and limited credit availability currently being experienced. The
failure of EESA to help stabilize the financial markets and a continuation or
worsening of current financial market conditions could materially and adversely
affect our business, financial condition, results of operations, access to
credit or the trading price of our common stock. Additionally, we expect to face
increased regulation of our industry, including as a result of the EESA.
Compliance with such regulation may increase our costs and limit our ability to
pursue business opportunities. We also may be required to pay significantly
higher FDIC premiums because market developments have significantly depleted the
insurance fund of the FDIC and reduced the ratio of reserves to insured
deposits.
Current
levels of market volatility are unprecedented and could adversely affect
us.
The stock
and credit markets have been experiencing volatility and disruption for more
than twelve months. In recent weeks, the volatility and disruption has reached
unprecedented levels. In some cases, the markets have produced downward pressure
on stock prices and credit availability for certain issuers without regard to
those issuers’ underlying financial strength. If current levels of market
disruption and volatility continue or worsen, we could experience an adverse
effect, which may be material, on our ability to access capital and on our
business, financial condition and results of operations.
The
soundness of other financial institutions could adversely affect
us.
Our
ability to engage in routine funding transactions could be adversely affected by
the actions and commercial soundness of other financial institutions. Financial
services institutions are interrelated as a result of trading, clearing,
counterparty or other relationships. We have exposure to many different
counterparties and we routinely execute transactions with counterparties in the
financial services industry, including brokers and dealers, banks, investment
banks, mutual funds, and other institutional entities. As a result, defaults by,
or even rumors or questions about, one or more financial services institutions,
or the financial services industry generally, have led to market-wide liquidity
problems and could lead to losses or defaults by us or by other institutions.
Many of these transactions expose us to credit risk in the event of default of
our counterparty or client. Any such losses could be material and
could materially and adversely affect our business, financial condition and
results of operations.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
None.
|
Defaults
Upon Senior Securities
|
None.
|
Submissions
of Matters to Vote of Security
Holders
|
None
None.
|
Exhibits
and Reports on Form 8-K
|
(a)
Exhibits
|
|
|
Reg
S-K (Item 601)
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
15
|
|
KPMG
LLP Letter Regarding Unaudited Interim Financial
Information
|
|
|
|
31(a)
|
|
Rule
13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal
executive officer.
|
|
|
|
31(b)
|
|
Rule
13a-15(e)/15d-15(e) Certification of Robert T. Cushing, principalfinancial
officer.
|
|
|
|
32
|
|
Section
1350 Certifications of Robert J. McCormick, principal executiveofficer and
Robert T. Cushing, principal financial
officer.
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During
the quarter ended September 30, 2008, TrustCo filed the following reports on
Form 8-K:
July 15,
2008, regarding a press release dated July 15, 2008, detailing second quarter
results for the quarter ending June 30, 2008.
August
19, 2008, regarding a press release dated August 19, 2008, declaring a cash
dividend of $0.11 per share payable on October 1, 2008, to shareholders of
record at the close of business on September 5, 2008.
September
16, 2008, regarding a press release dated September 16, 2008 announcing the
Board of Directors adopted changes to the company’s bylaws to remove the age
limitation for members of the Corporation’s Board of Directors.
September
29, 2008, regarding a press release dated September 29, 2008 announcing an
agreement between its subsidiary, Trustco Insurance Agency, Inc., and The
Optimus Group, LLC to offer insurance products.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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TrustCo
Bank Corp NY
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By: /s/Robert J.
McCormick
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Robert
J. McCormick
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President
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and
Chief Executive Officer
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By: /s/Robert T.
Cushing
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Robert
T. Cushing
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Executive
Vice President
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and
Chief Financial Officer
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Date: November
7, 2008
Exhibits
Index
Reg
S-K
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Exhibit No.
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Description
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KPMG
LLP Letter Regarding Unaudited Interim Financial
Information
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Rule
13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal
executive officer.
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Rule
13a-15(e)/15d-15(e) Certification of Robert T. Cushing, principal
financial officer.
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Section
1350 Certifications of Robert J. McCormick, principal executive officer
and Robert T. Cushing, principal financial
officer.
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