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, 2006
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
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. (x) Yes ( ) No
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer (x) Accelerated filer ( ) Non-accelerated filer ( )
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). ( )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 May 1, 2006
--------------------- ----------------------------
$1 Par Value 75,031,545
TrustCo Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
------------------------------------------------------------------------------
Item 1. Interim Financial Statements (Unaudited):
Consolidated Statements of Income for the
Three Months Ended March 31, 2006 and 2005 1
Consolidated Statements of Financial Condition
as of March 31, 2006 and December 31, 2005 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2006 and 2005 3 - 4
Notes to Consolidated Interim Financial Statements 5 - 12
Report of Independent Registered Public Accounting Firm 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 24
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25
Item 4. Controls and Procedures 25 - 26
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 1A. Risk Factors 27
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submissions of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 28
i
Item 1. Interim Financial Statements
TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)
3 Months Ended
March 31,
--------------------------------------------
2006 2005
---- ----
Interest and dividend income:
Interest and fees on loans $ 24,351 19,982
Interest on U. S. Treasuries and agencies 9,983 6,877
Interest on states and political
subdivisions 1,363 1,855
Interest on mortgage-backed securities 2,294 2,233
Interest and dividends on other securities 226 135
Interest on federal funds sold and other
short term investments 2,492 3,803
--------------------------------------------
Total interest income 40,709 34,885
--------------------------------------------
Interest expense:
Interest on deposits:
Interest-bearing checking 284 387
Savings 2,366 1,714
Money market deposit accounts 1,841 440
Time deposits 9,928 7,089
Interest on short-term borrowings 778 394
Interest on long-term debt 1 1
--------------------------------------------
Total interest expense 15,198 10,025
--------------------------------------------
Net interest income 25,511 24,860
Provision (credit) for loan losses (1,800) (1,500)
--------------------------------------------
Net interest income after provision (credit)
for loan losses 27,311 26,360
--------------------------------------------
Noninterest income:
Trust department income 1,238 1,401
Fees for other services to customers 1,931 1,813
Net (loss) gain on securities transactions (288) 3,652
Other 424 774
--------------------------------------------
Total noninterest income 3,305 7,640
--------------------------------------------
Noninterest expenses:
Salaries and employee benefits 4,961 4,768
Net occupancy expense 1,974 1,850
Equipment expense 741 647
Professional services 824 796
Outsourced services 1,051 1,185
Other real estate expenses / (income) (10) (332)
Other 2,384 2,318
--------------------------------------------
Total noninterest expenses 11,925 11,232
--------------------------------------------
Income before taxes 18,691 22,768
Income taxes 6,325 7,861
--------------------------------------------
Net income $ 12,366 14,907
============================================
Net income per Common Share:
- Basic $ 0.165 0.199
============================================
- Diluted $ 0.164 0.197
============================================
See accompanying notes to unaudited consolidated interim financial statements.
1
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition (Unaudited)
(dollars in thousands, except per share data)
03/31/06 12/31/05
-------- --------
ASSETS:
Cash and due from banks $ 44,248 55,667
Federal funds sold and other short term investments 199,469 257,196
-------------------- --------------------
Total cash and cash equivalents 243,717 312,863
Securities available for sale:
U. S. Treasuries and agencies 782,957 743,763
States and political subdivisions 125,015 118,950
Mortgage-backed securities and
collateralized mortgage obligations 191,946 200,963
Other 12,462 20,400
-------------------- --------------------
Total securities available for sale 1,112,380 1,084,076
-------------------- --------------------
Loans:
Commercial 227,018 214,750
Residential mortgage loans 1,099,302 1,057,937
Home equity line of credit 197,968 192,291
Installment loans 5,788 5,741
-------------------- --------------------
Total loans 1,530,076 1,470,719
Less:
Allowance for loan losses 44,029 45,377
-------------------- --------------------
Net loans 1,486,047 1,425,342
Bank premises and equipment 22,539 21,734
Other assets 67,938 68,744
-------------------- --------------------
Total assets $ 2,932,621 2,912,759
==================== ====================
LIABILITIES:
Deposits:
Demand $ 244,377 251,012
Interest-bearing checking 294,197 309,668
Savings accounts 722,858 725,336
Money market deposit accounts 218,518 190,560
Certificates of deposit (in denominations of
$100,000 or more) 232,111 225,611
Time deposits 867,629 860,300
-------------------- --------------------
Total deposits 2,579,690 2,562,487
Short-term borrowings 100,236 87,935
Long-term debt 80 87
Accrued expenses and other liabilities 30,860 33,589
-------------------- --------------------
Total liabilities 2,710,866 2,684,098
-------------------- --------------------
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 shares authorized,
and 82,119,360 shares issued March 31, 2006 and
and December 31, 2005, respectively 82,120 82,120
Surplus 118,193 117,770
Undivided profits 103,707 103,315
Accumulated other comprehensive loss:
Net unrealized loss on securities available for sale (13,720) (6,054)
Treasury stock at cost - 7,296,006 and 7,343,783 shares at
March 31, 2006 and December 31, 2005, respectively (68,545) (68,490)
-------------------- --------------------
Total shareholders' equity 221,755 228,661
-------------------- --------------------
Total liabilities and shareholders' equity $ 2,932,621 2,912,759
==================== ====================
See accompanying notes to unaudited consolidated interim financial statements.
2
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED March 31, 2006 2005
---- ----
Cash flows from operating activities:
Net income 12,366 14,907
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 700 605
Gain on sale of other real estate owned (34) (368)
Credit for loan losses (1,800) (1,500)
Deferred tax expense 999 58
Gain on sale of premises and equipment (29) -
Net loss (gain) on sale of securities available for sale 288 (3,652)
Decrease in taxes receivable 6,172 9,455
Decrease in interest receivable 260 392
Increase in interest payable 140 35
Increase in other assets (1,535) (1,682)
Decrease in accrued expenses and other liabilities (2,879) (1,724)
-----------------------------------------
Total adjustments 2,282 1,619
-----------------------------------------
Net cash provided by operating activities 14,648 16,526
-----------------------------------------
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale 42,133 56,576
Purchase of securities available for sale (84,026) (51,980)
Proceeds from maturities of securities available for sale 550 550
Net increase in loans (58,933) (24,656)
Proceeds from dispositions of real estate owned 57 368
Proceeds from dispositions of bank premises and equipment 38 -
Purchases of bank premises and equipment (1,514) (791)
-----------------------------------------
Net cash used in investing activities (101,695) (19,933)
-----------------------------------------
Cash flows from financing activities:
Net increase/(decrease) in deposits 17,203 (29,716)
Increase/(decrease) in short-term borrowings 12,301 (2,931)
Repayment of long-term debt (7) (7)
Proceeds from exercise of stock options 179 2,324
Proceeds from sale of treasury stock 2,146 2,004
Purchase of treasury stock (1,957) (3,039)
Dividends paid (11,964) (11,181)
-----------------------------------------
Net cash provided by/(used in) financing activities 17,901 (42,546)
-----------------------------------------
Net decrease in cash and cash equivalents (69,146) (45,953)
Cash and cash equivalents at beginning of period 312,863 696,430
-----------------------------------------
Cash and cash equivalents at end of period 243,717 650,477
=========================================
(Continued)
See accompanying notes to unaudited consolidated interim financial statements.
3
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
THREE MONTHS ENDED March 31, 2006 2005
---- ----
Interest paid 15,058 9,990
Increase in due to broker, net - 20,000
Income taxes paid 81 -
Transfer of loans to real estate owned 28 -
Increase in dividends payable 10 70
Change in unrealized loss on securities
available for sale - gross of deferred taxes (12,751) (10,302)
Change in deferred tax effect on unrealized loss
on securities available for sale 5,084 4,109
See accompanying notes to unaudited consolidated interim financial statements.
4
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements
(Unaudited)
1. Financial Statement Presentation
The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp
NY (the Company) include the accounts of the subsidiaries after elimination
of all significant intercompany accounts and transactions. Prior year amounts
have been reclassified to conform to the current year presentation.
In the opinion of the management of the Company, the accompanying unaudited
Consolidated Interim Financial Statements contain all adjustments necessary
to present fairly the financial position as of March 31, 2006 and the results
of operations and cash flows for the three months ended March 31, 2006 and
2005. 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 2005 Annual Report to Shareholders on Form 10-K.
2. Earnings Per Share
A reconciliation of the component parts of earnings per share for the three
month period ended March 31, 2006 and 2005 follows:
Weighted
(In thousands, Net Average Shares Per Share
except per share data) Income Outstanding Amounts
-----------------------------------------------------
For the quarter ended
March 31, 2006:
Basic EPS:
Net income available to
Common shareholders $12,366 74,871 $0.165
Effect of Dilutive Securities:
Stock options - 392 (.001)
-----------------------------------------------------
Diluted EPS $12,366 75,263 $0.164
=====================================================
For quarter ended
March 31, 2005:
Basic EPS:
Net income available to
Common shareholders $14,907 74,881 $0.199
Effect of Dilutive Securities:
Stock options - 605 (.002)
-----------------------------------------------------
Diluted EPS $14,907 75,486 $0.197
=====================================================
5
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
3. Stock Option Plans
The Company has stock option plans for officers and directors. Effective
January 1, 2006 the Company adopted the provisions of FASB Statement No.
123R. Previously the Company had adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement 123) and Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" (Statement 148).
The Company's stock option plans were previously accounted for in accordance
with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion 25) and as such, no
compensation expense was ordinarily recorded for these plans.
In the fourth quarter of 2005 the Board of Director's of the Company approved
the accelerated vesting of all outstanding unvested stock option to purchase
shares of common stock. These options were previously awarded to executive
officers and employees under the 1995 and 2004 Stock Option Plans. The
acceleration of vesting was done in anticipation of the adoption of Statement
123R. By accelerating the vesting of these options the Company estimated that
approximately $1.3 million of future compensation expense, net of tax, would
be eliminated.
Options to purchase 882,100 shares of the Company's common stock, which would
otherwise have vested from time to time over the next four years, became
immediately vested and exercisable as a result of this action. The number of
shares and exercise prices of the options subject to the acceleration
remained unchanged. Also, all of the other terms of the options remain the
same. The Company recorded $127 thousand of expense during the fourth quarter
of 2005 related to this acceleration based upon an analysis performed in
accordance with APB Opinion 25.
The accelerated options included 749,500 options held by executive officers
and 132,600 options held by other employees. Based upon the Company's closing
stock price of $12.76 per share on the date of accelerated vesting certain of
the options were below and others above the closing market price as follows:
Grant Accelerated Exercise
Date Vesting Shares Price
----- -------------- --------
2005 411,200 $12.15
2004 394,500 $13.55
2002 76,400 $11.83
-------
882,100
=======
The decision to accelerate the vesting of these options was made
primarily to reduce non-cash compensation expense that would have been
recorded in its income statement in future periods upon the adoption of FASB
Statement No. 123R.
6
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
Had compensation expense for the Company's stock option plans been
determined consistent with Statement 123, the Company's net income and
earnings per share for the three months ended March 31, 2006 and 2005 would
have been as follows:
(dollars in thousands except per share data)
2006 2005
------- ------
Net income:
As reported $12,366 14,907
Deduct: total stock-based
compensation expense
determined under fair
value based method
for all awards, net of
related tax effects - (191)
------- ------
Pro forma net income $12,366 14,716
======= ======
Earnings per share:
Basic - as reported $ .165 .199
Basic - pro forma .165 .197
Diluted - as reported .164 .197
Diluted - pro forma .164 .195
The weighted average fair value of each option as of the grant date,
estimated using the Black-Scholes pricing model, and calculated in accordance
with Statement 123 was as follows for options granted in the year indicated.
No options were granted in the first quarter of 2006.
Employees' Directors'
Plan Plan
---------- ----------
2005 $1.675 1.480
The following assumptions were utilized in the calculation of the fair
value of the options under Statement 123:
Employees' Directors'
Plan Plan
---------- ----------
Expected dividend yield:
2005 4.95% 4.95
Risk-free interest rate:
2005 3.91 3.76
Expected volatility rate:
2005 21.25 19.76
Expected lives 7.5 years 6.0 years
7
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
Under the 2004 TrustCo Bank Corp NY Stock Option Plan, the Company may grant
options to its eligible employees for up to approximately 2.0 million shares
of common stock. Under the 1995 TrustCo Bank Corp NY Stock Option Plan, the
Company may grant options to its eligible employees for up to approximately
7.9 million shares of common stock. Under the 2004 Directors Stock Option
Plan, the Company may grant options to its directors for up to approximately
200 thousand shares of its common stock. Under the 1993 Directors Stock
Option Plan, the Company could have granted options to its directors for up
to approximately 531 thousand shares of its common stock. The source of
shares issued as a result of stock option exercises is authorized, but
unissued shares as well as treasury shares.
Under each of these plans, the exercise price of each option equals the
market price of the Company's stock on the date of the grant, and an option's
maximum term is ten years. Options vest over five years from the date the
options are granted for the employees plans and they are immediately vested
under the directors' plan. A summary of the status of TrustCo's stock option
plans as of March 31, 2006, and changes during the quarter ended, are as
follows:
Outstanding Options Exercisable Options
-------------------------------------------------------------
Weighted Weighted
Average Average
Option Option
Shares Price Shares Price
-------------------------------------------------------------
Balance, January 1, 2006 4,178,049 $10.85 4,178,049 $10.85
Exercised Options - 2006 (31,920) 5.62 (31,920) 5.62
-------------------------------------------------------------
Balance, March 31, 2006 4,146,129 10.89 4,146,129 10.89
=============================================================
The total intrinsic value of stock options exercised during the first
quarter of 2006 and 2005 was approximately $227 thousand and $2.5 million,
respectively. The shares used for the 2006 stock option exercises were issued
from treasury shares, while previously unissued shares were used for the 2005
stock option exercises.
The following table summarizes information about total stock options
outstanding and exercisable at March 31, 2006:
Weighted
Average Weighted
Range of Options Remaining Average
Exercise Outstanding Contractual Exercise
Price and Exercisable Life Price
-------- -------------------------------------------------------------------------
Less than
$7.50 65,311 1.7 years $ 5.81
Between $7.51
and $10.00 2,136,317 4.7 years 9.58
Greater than
$10.00 1,944,500 8.5 years 12.51
-------------------------------------------------------------------------
Total 4,146,129 6.4 years $10.89
-------------------------------------------------------------------------
The aggregate intrinsic value of options outstanding and exercisable as of
March 31, 2006 was approximately $6.2 million.
8
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
The Company has awarded 2.7 million performance bonus units to the executive
officers and directors. These units become vested and exercisable only under
a change of control as defined in the plan. The units were awarded based upon
the stock price at the time of grant and, if exercised under a change of
control, allow the holder to receive the increase in value offered in the
exchange over the stock price at the date of grant for each unit.
9
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
4. Comprehensive Income
Comprehensive income includes the reported net income of a company adjusted
for items that are accounted for as direct entries to equity, such as the
mark to market adjustment on securities available for sale, foreign currency
items, minimum pension liability adjustments, and certain derivative gains
and losses. At the Company, comprehensive income represents the sum of net
income and items of other comprehensive income or loss, which are reported
directly in shareholders' equity, net of tax, such as the change in net
unrealized gain or loss on securities available for sale. Accumulated other
comprehensive income or loss, which is a component of shareholders' equity,
represents the net unrealized gain or loss on securities available for sale,
net of tax.
Comprehensive income for the three month periods ended March 31, 2006 and
2005 was $4.7 million and $8.7 million, respectively.
The following summarizes the components of other comprehensive income/(loss):
Unrealized gains/(losses) on securities: (dollars in thousands)
----------------------------------------
Unrealized net holding losses arising during the three months ended March 31,
2006, net of tax (pre-tax loss of $13,039). $(7,837)
Reclassification adjustment for net loss realized in net income during the
three months ended March 31, 2006, net of tax (pre-tax net loss of $288). 171
--------
Other comprehensive loss - three months ended March 31, 2006 $(7,666)
========
Unrealized net holding losses arising during the three months ended March 31,
2005, net of tax (pre-tax loss of $6,650). $(3,986)
Reclassification adjustment for net gain realized in net income during the
three months ended March 31, 2005 net of tax (pre-tax net gain of $3,652). (2,207)
--------
Other comprehensive loss - three months ended March 31, 2005 $(6,193)
========
10
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
5. Benefit Plans
The table below outlines the component's of the Company's net periodic
expense (benefit) recognized during the three months ended March 31, 2006 and
2005 for its pension and other postretirement benefit plans:
Components of Net Periodic Expense/(Benefit)
Pension Benefits Other Postretirement Benefits
------------------------ ------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Service cost $ 191 208 9 6
Interest cost 388 388 18 13
Expected return on plan assets (448) (463) (102) (101)
Amortization of prior service cost 27 27 (114) (125)
------ ------ ------ ------
Net periodic expense/(benefit) $ 158 160 (189) (207)
====== ====== ====== ======
Contributions
The Company previously disclosed in its consolidated financial statements for
the year ended December 31, 2005, that it did not expect to make any
contributions to its pension and postretirement benefit plans in 2006. As of
March 31, 2006, no contributions have been made. The Company presently
anticipates that in accordance with IRS limitations and accounting standards,
it will not make any contributions in 2006.
6. Impact of Changes in Accounting Standards
SFAS No. 123R
In 2004, the FASB issued a statement to revise Statement of Financial
Accounting Standards ("SFAS") No. 123 and SFAS No. 95, "Share-Based Payment,"
that addresses the accounting for share-based payment transactions in which
an enterprise receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise's equity instruments of that may be settled by the
issuance of such equity instruments. The Company adopted the provisions of
SFAS No. 123R using the modified prospective method of transition on January
1, 2006. Under this method, SFAS No. 123R will apply to new awards and to
awards that are outstanding on the effective date and are subsequently
modified or cancelled. Compensation expense for outstanding awards for which
the requisite service period had not been rendered as of the effective date
will be recognized over the remaining service period using the compensation
cost calculated for pro forma disclosure purposes under SFAS No. 123. See
Note 3, Stock Option Plans, for pro-forma earnings per share for stock-based
compensation and information on the acceleration of vesting periods that
occurred in 2005. The adoption of SFAS No. 123R did not have a significant
effect on the Company's consolidated financial condition or results of
operations.
11
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
7. Guarantees
The Company does not issue any guarantees that would require
liability-recognition or disclosure, other than its standby letters of
credit. Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Standby
letters of credit generally arise in connection with lending relationships.
The credit risk involved in issuing these instruments is essentially the same
as that involved in extending loans to customers. Contingent obligations
under standby letters of credit totaled approximately $3.2 million at March
31, 2006 and represent the maximum potential future payments the Company
could be required to make. Typically, these instruments have terms of twelve
months or less and expire unused; therefore, the total amounts do not
necessarily represent future cash requirements. Each customer is evaluated
individually for creditworthiness under the same underwriting standards used
for commitments to extend credit and on-balance sheet instruments. Company
policies governing loan collateral apply to standby letters of credit at the
time of credit extension. Loan-to-value ratios are generally consistent with
loan-to-value requirements for other commercial loans secured by similar
types of collateral. The fair value of the Company's standby letters of
credit at March 31, 2006 was insignificant.
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2006, and the
related consolidated statements of income and cash flows for the three-month
periods ended March 31, 2006 and 2005. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
statement of financial condition of TrustCo Bank Corp NY and subsidiaries as
of December 31, 2005, 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 February 24, 2006, 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, 2005 is fairly stated, in all
material respects, in relation to the consolidated statement of financial
condition from which it has been derived.
/s/ KPMG LLP
------------
KPMG LLP
Albany, New York
May 5, 2006
13
Item 2. 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 period ended March 31, 2006, with
comparisons to 2005 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 2005 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.
Forward-looking Statements
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which
are not historical or current facts, are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, and are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. TrustCo wishes to caution readers
not to place undue reliance on any such forward-looking statements, which
speak only as of the date made. The following important factors, among
others, in some cases have affected and in the future could affect TrustCo's
actual results, and could cause TrustCo's actual financial performance to
differ materially from that expressed in any forward-looking statement: (1)
credit risk, (2) interest rate risk, (3) competition, (4) changes in the
regulatory environment, and (5) changes in general business and economic
trends. The foregoing list should not be construed as exhaustive, and the
Company disclaims any obligation to subsequently revise any forward-looking
statements to reflect events or circumstances after the date of such
statements, or to reflect the occurrence of anticipated or unanticipated
events.
Following this discussion is the table "Distribution of Assets, Liabilities
and Shareholders' Equity: Interest Rates and Interest Differential" which
gives a detailed breakdown of TrustCo's average interest earning assets and
interest bearing liabilities for the three months ended March 31, 2006 and
2005.
Overview
TrustCo recorded net income of $12.4 million, or $0.164 of diluted earnings
per share for the three months ended March 31, 2006, as compared to net
income of $14.9 million or $0.197 of diluted earnings per share in the same
period in 2005.
The primary factors accounting for the year to date changes were:
o Increase in the average balance of interest earning assets by $64.9
million to $2.82 billion for the first quarter of 2006 compared to
the comparable period in 2005,
14
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
o Increase of $389 thousand in taxable equivalent net interest
income,
o Increase in the recapture of the provision for loan losses from
$1.5 million at March 31, 2005 to $1.8 million at March 31, 2006,
o Decrease in noninterest income from $7.6 million for the first
quarter of 2005 to $3.3 million for the comparable period in 2006.
Included in non interest income were $3.7 million of net gain on
securities transactions for 2005 and $288 thousand of net losses on
securities transactions for 2006. Also included in non interest
income were $34 thousand and $368 thousand of net gains on the sale
of real estate in 2006 and 2005, respectively, and,
o An increase of $693 thousand in non interest expense.
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.
The following Management's Discussion and Analysis for the first quarter of
2006 compared to the comparable period in 2005 is greatly affected by the
change in interest rates in the marketplace in which TrustCo competes.
Included in the 2005 Annual Report to Shareholders is a description of the
effect interest rates had on the results for the year 2005 compared to 2004.
Most of the same market factors discussed in the 2005 Annual Report also had
a significant impact on the first quarter 2006 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. This is the interest rate utilized for
institutions with the highest credit quality rating. The federal funds rate
increased from 2.25% at January 1, 2005 to 4.75% by March 31, 2006. This is a
250 basis point increase during this time period. Over the same time period,
for comparison purposes, the 10 year treasury rate increased from 4.21% at
January 1, 2005 to 4.85% by March 31, 2006, an increase of only 64 basis
points. The Federal Reserve has indicated its intention to continue to
monitor economic expansion in the United States economy which may require
additional increases in the federal funds rate subsequent to March 31, 2006.
15
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
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. 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 the short term market
interest rates. Also, changes in interest rates have an effect on the
recorded balance of the securities available for sale portfolio, which is
recorded at fair value. Generally as interest rates increase the fair value
of the securities available for sale portfolio 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 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.
For the first quarter of 2006 the net interest margin decreased to 3.70%
from 3.75% for the first quarter of 2005. The quarterly results reflect the
following significant factors:
- The average balance of securities available for sale increased by $224.9
million and the average yield decreased to 5.31%.
- The average balance of federal funds sold and other short term
investments decreased by $404.3 million and the average yield increased
203 basis points to 4.48%. The increase in yield on federal funds sold
and other short-term investments is attributable to the increase in the
target federal funds rate during these time periods.
- The loan portfolio grew by $244.3 million to $1.50 billion and the
average yield increased 13 basis points to 6.53%.
- The average balance of interest bearing liabilities (primarily deposit
accounts) increased $41.4 million and the average yield increased 84
basis points to 2.56%.
These changes resulted in a net interest margin decrease of 5 basis points
from 3.75% for the first quarter of 2005 to 3.70% for the comparable period
in 2006.
During the first quarter of 2006 the Company's strategy was to expand the
loan portfolio by offering competitive interest rates as the rate environment
began to increase. The TrustCo residential real estate loan product is very
competitive compared to local and national competitors. The securities
available for sale portfolio remained relatively consistent with the balance
as of year end 2005. The increase in the average balance of securities
available for sale from the first quarter of 2005 to the first quarter of
2006 primarily reflects changes made throughout 2005.
The strategy on the funding side of the balance sheet continues to be to
attract 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 but has also resulted in part of the increase in the
deposit costs.
16
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
Earning Assets
Total average interest earning assets increased from $2.75 billion in 2005 to
$2.82 billion in 2006 with an average yield of 5.22% in 2005 and 5.89% in
2006. Income on average earning assets increased during this same time-period
from $35.9 million in 2005 to $41.4 million in 2006.
Loans
The average balance of loans was $1.50 billion in 2006 and $1.25 billion in
2005. The yield on loans increased from 6.40% in 2005 to 6.53% in 2006. The
combination of the higher average balances and the higher rates resulted in
an increase in the interest income on loans by $4.4 million.
Compared to the first quarter of 2005, the average balance of the loan
portfolio during the first quarter of 2006 increased in virtually all loan
categories except consumer loans. The average balance of residential mortgage
loans was $849.2 million in 2005 compared to $1.08 billion in 2006, an
increase of 27.0%. The average yield on residential mortgage loans decreased
by 24 basis points in 2006 compared to 2005.
TrustCo actively markets the residential loan products within its market
territory. Mortgage loan rates are affected by a number of factors including
the prime rate, the federal funds rate, 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. 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 and the fact that the Company holds these
loans in portfolio and does not sell them into the secondary markets.
Though there is debate among nationally recognized economists the general
tenor of the national economy is for improvement and increases in interest
rates. Consequently the significant amount of refinancing that occurred
during 2003 and early 2004 may be completed with only residual effects into
2006. 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.
The impact of the increase in the benchmark interest rate indices (prime
rate, federal funds, etc.) is apparent in the change in the yield earned in
the commercial and home equity loan portfolios. The rates earned in 2006 were
46 basis points, and 183 basis points, respectively, greater than in the
first three months of 2005.
Securities Available for Sale
Securities available for sale had an average balance of $1.10 billion during
the quarter ended March 31, 2006, as compared to $874.1 million in 2005.
These balances earned an average yield of 5.53% in 2005 and 5.31% in 2006.
This resulted in interest income on the securities available for sale of
$14.6 million in 2006 and $12.1 million in 2005.
17
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
The largest increase in the securities available for sale portfolio was
within the category of Government Sponsored Enterprises which are debt
instruments issued by FNMA, Freddie Mac and the Federal Home Loan Bank. The
increase was $253.8 million in the average balance between the first quarter
of 2005 and the first quarter of 2006. During 2005 and 2006 the Company
increased it's investment in these instruments as a means of deploying excess
liquidity that had been invested in Federal Funds sold and other short term
investments. The net interest margin was positively affected by these steps
because the rates earned on these investments were greater than the rates
earned on the Federal Funds and other short term investments portfolio.
The average balance of the State, County and Municipal portfolio decreased
from $147.0 million for the first quarter of 2005 to $117.9 million for the
first quarter of 2006. The tax equivalent yield on this portfolio was 7.74%
in 2005 and 7.03% in 2006. The reduced balances outstanding reflect sales of
long dated maturities of municipal bonds that occurred in 2005. These sales
allowed the Company to recognize gains along with providing additional cash
flows for reinvestment.
For 2006 the long term interest rates as reflected by the 10 year Treasury
have increased over the levels for 2005. The securities available for sale
portfolio is reflected at fair value and therefore these investments
reflected unrecognized depreciation of $22.8 million. The Company has the
ability and intent to hold these securities to maturity or to the point that
the unrealized loss diminishes. None of the depreciation in the value of this
portfolio reflects a deterioration of the credit worthiness of the issuers or
a concern as to the eventual repayment of all amounts due.
Federal Funds Sold and Other Short-term Investments
The 2006 first quarter average balance of federal funds sold and other
short-term investments was $224.9 million, $404.3 million less than the
$629.2 million in 2005. The portfolio yield increased from 2.45% in 2005 to
4.48% in 2006. 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 $1.3 million from $3.8 million in
2005 to $2.5 million in 2006.
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 $2.28 billion during 2005 to $2.31 billion in 2006, and the
average rate paid increased from 1.71% for 2005 to 2.53% for 2006. Total
interest expense on these deposits increased $4.8 million to $14.4 million.
18
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
Average demand deposit balances increased by 6.8% during the period from the
first quarter of 2005 to the first quarter of 2006. The average balance was
$226.4 million in 2005, and $241.9 million in 2006.
Average short-term borrowings for the quarter were $91.8 million in 2006
compared to $82.5 million in 2005. The average rate increased during this
time period from 1.94% in 2005 to 3.44% in 2006. Rates on short-term
borrowings tend to change with the rates on the target Federal Funds.
Net Interest Income
Taxable equivalent net interest income increased by $389 thousand to $26.2
million in 2006. The net interest spread decreased from 3.50% in 2005 to
3.33% in 2006. The net interest margin decreased by 5 basis points to 3.70%
for the first quarter of 2006.
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 March 31, 2006.
Nonperforming loans: Total nonperforming loans were $3.4 million at March 31,
2006, an increase from the $3.2 million of nonperforming loans at March 31,
2005. There were $1.9 million nonaccrual loans at March 31, 2006 compared to
$1.0 million at March 31, 2005. Restructured loans were $2.1 million at March
31, 2005 compared to $1.5 million at March 31, 2006. There were no loans at
March 31, 2006 and 2005 that are past due 90 days or more and still accruing
interest.
All of the nonperforming loans at March 31, 2006 and 2005 are residential
real estate or retail consumer loans. Since 2000, there has been a continued
shifting in the components of TrustCo's problem loans and chargeoffs from
commercial and commercial real estate to the residential real estate and
retail consumer loan portfolios.
TrustCo strives to identify borrowers that are experiencing financial
difficulties and to work aggressively with them so as to minimize losses or
exposures. Beginning in 2004 the number of new bankruptcy filings in the
Capital District area were lower than statewide trends. Also the demand for
housing in the Capital District area has increased which has resulted in
increased real estate prices in selected sectors of the marketplace. These
trends may be indicators of future economic stability for this region and a
continued lessening of loan charge offs.
19
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
Total impaired loans at March 31, 2006 of $1.5 million, consisted of
restructured retail loans. During the first quarter of 2006, there were no
commercial loan charge offs, $12 thousand of consumer loan charge offs and
$356 thousand of residential mortgage loan charge offs as compared with $314
thousand of commercial loan charge offs, $92 thousand of consumer loan charge
offs and $357 thousand of residential mortgage loan charge offs in the first
quarter of 2005. Recoveries during the quarter were $1.4 million in 2005 and
$820 thousand in 2006.
Though the economic climate in the Upstate New York area has suffered over
the last several years, resulting in higher bankruptcies and relatively flat
real estate prices, overall economic trends in the last two years have been
improving. As noted previously, bankruptcies in the Capital District area
have lagged statewide trends and general housing prices have continued to
increase. These positive trends have helped marginal credits better manage
their debt load. Because of continued improvement in nearly all of the
indicators of the Company's credit quality and management's assessment of
economic conditions and risk, combined with the continuation of significant
loan recoveries and the level and nature of recent loan charge offs, a
negative provision of $1.8 million for the first quarter was recognized,
compared to $1.5 million in the first quarter of 2005.
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 March 31, 2006, the allowance for loan losses was $44.0 million, which
represents a decrease from the $48.5 million in the allowance at March 31,
2005. The allowance represents 3.84% of the loan portfolio as of March 31,
2005 compared to 2.88% at March 31, 2006.
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:
o The magnitude and nature of the recent loan charge offs and
recoveries,
o The growth in the loan portfolio and the implication that has in
relation to the economic climate in the bank's business territory,
and
o The improving economic environment in the upstate New York
territory over the last two years.
Management continues to monitor these factors in determining future
provisions or negative provisions for loan losses in relation to the economic
environment, loan charge-offs, recoveries and the level and trends of
nonperforming loans. Should these trends continue, negative provisions for
loan losses would, in all likelihood, also continue.
20
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands.
TrustCo's earnings performance and strong capital position enable the Company
to raise funds easily in the marketplace and to secure new sources of
funding. The Company actively manages its liquidity through target ratios
established under its liquidity policies. Continual monitoring of both
historical and prospective ratios allows TrustCo to employ strategies
necessary to maintain adequate liquidity. Management has also defined various
degrees of adverse liquidity situations, which could potentially occur, and
has prepared appropriate contingency plans should such a situation arise.
Noninterest Income
Total noninterest income for the first quarter was $3.3 million, compared to
$7.6 million in 2005. Included in the first quarter results are net
securities gains of $3.7 million in 2005, and losses of $288 thousand in
2006. Excluding these securities transactions, noninterest income in the
first quarter of 2006 was $3.6 million, compared to $4.0 million in 2005.
Trust department income decreased to $1.2 million for the first quarter
of 2006 compared to $1.4 million in the first quarter of 2005. Trust
department assets under management were $891 million at March 31, 2006
compared to $946 million at March 31, 2005.
Other noninterest income decreased to $424 thousand in the first quarter of
2006 from $774 thousand in the first quarter of 2005 due to the gain on sale
of properties in 2005.
Noninterest Expenses
Total noninterest expense increased from $11.2 million for the three months
ended March 31, 2005 to $11.9 million for the three months ended March 31,
2006. Within the category of noninterest expense, salaries and employee
benefits increased $193 thousand to $5.0 million for 2006.
Net occupancy expense increased $124 thousand to $2.0 million during the
first quarter of 2006. The increase is the result of new branch lease costs.
Equipment expense increased $94 thousand between the first quarter of 2005
and the first quarter of 2006 due primarily to the additional depreciation on
new branch equipment.
Income Taxes
In the first quarter of 2006, TrustCo recognized income tax expense of $6.3
million as compared to $7.9 million for 2005. The effective tax rates were
33.8% and 34.5% for the first quarter of 2006 and 2005, 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
New York State income taxes.
21
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
Capital Resources
Consistent with its long-term goal of operating a sound and profitable
financial organization, TrustCo strives to maintain strong capital ratios.
New issues of equity securities have not been required since traditionally,
most of its capital requirements are met through capital retention.
Total shareholders' equity at March 31, 2006 was $221.8 million, a decrease
from the $228.7 million at year-end 2005. TrustCo declared dividends of
$0.160 per share in the first quarter of 2006. This results in a dividend
payout ratio of 96.8% in 2006.
In addition, since year end 2005 TrustCo's total shareholders' equity has
been affected by the purchase of $2.0 million in additional treasury stock, a
increase in the accumulated other comprehensive loss from the unrealized
losses on securities available for sale of $7.7 million and the issuance of
common stock as a result of stock option exercises of $2.3 million.
The Company achieved the following ratios as of March 31, 2006 and 2005:
March 31, Minimum Regulatory
2006 2005 Guidelines
------------------------------------------
Tier 1 risk adjusted
capital 16.07% 17.33% 4.00%
Total risk adjusted
capital 17.34% 18.61% 8.00%
In addition, at March 31, 2006 and 2005, the consolidated equity to total
assets ratio (excluding the mark to market effect of securities available for
sale) was 7.99% and 7.94%, respectively, compared to a minimum regulatory
requirement of 4.00%.
Critical Accounting Policies:
Pursuant to recent 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 credit 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 2005 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.
22
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
Proposed Accounting Standards:
SFAS No. 123R
In 2004, the FASB issued a statement to revise Statement of Financial
Accounting Standards ("SFAS") No. 123 and SFAS No. 95, "Share-Based Payment,"
that addresses the accounting for share-based payment transactions in which
an enterprise receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise's equity instruments of that may be settled by the
issuance of such equity instruments. The Company adopted the provisions of
SFAS No. 123R using the modified prospective method of transition on January
1, 2006. Under this method, SFAS No. 123R will apply to new awards and to
awards that are outstanding on the effective date and are subsequently
modified or cancelled. Compensation expense for outstanding awards for which
the requisite service period had not been rendered as of the effective date
will be recognized over the remaining service period using the compensation
cost calculated for pro forma disclosure purposes under SFAS No. 123. See
Note 3, Stock Option Plans, for pro-forma earnings per share for stock-based
compensation and information on the acceleration of vesting periods that
occurred in 2005. The adoption of SFAS No. 123R did not have a significant
effect on the Company's consolidated financial condition or results of
operations.
23
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
March 31, 2006
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 is calculated using
amortized costs for these securities. Included in the balance of
shareholders' equity is unrealized depreciation, net of tax, in the available
for sale portfolio of $7.0 million in 2006 and unrealized appreciation, net
of tax, of $3.2 million in 2005. The subtotals contained in the following
table are the arithmetic totals of the items contained in that category.
First Quarter 2006 First Quarter 2005
----------------------------- -----------------------------
Average Interest Average Average Interest Average Change in Variance Variance
(dollars in thousands) Balance Rate Balance Rate Interest Balance Rate
Income/ Change Change
Expense
---------- ------- ----- ---------- ------- ----- ------ ------- ------
Assets
Securities available for sale:
U.S. Treasuries $ 727 $ 7 3.96% $ 858 $ 7 3.37% - (5) 5
Gov't Sponsored Enterprises 770,746 9,976 5.18% 516,990 6,870 5.32 3,106 4,322 (1,216)
Mortgage-backed securities
and collateralized
mortgage obligations 197,702 2,294 4.64% 194,947 2,233 4.58% 61 32 29
States and political
subdivisions 117,924 2,073 7.03% 147,001 2,843 7.74% (770) (526) (244)
Other 11,925 239 8.09% 14,319 135 3.78% 104 (145) 249
---------- ------- ----- ---------- ------- ----- ------ ------- ------
Total securities
available for sale 1,099,024 14,589 5.31% 874,115 12,088 5.53% 2,501 3,678 (1,177)
Federal funds sold and other
short-term Investments 224,920 2,492 4.48% 629,237 3,803 2.45% (1,311) (11,731) 10,420
Commercial Loans 218,477 4,073 7.47% 197,988 3,465 7.01% 608 372 236
Residential mortgage loans 1,078,655 16,688 6.19% 849,184 13,645 6.43% 3,043 6,255 (3,212)
Home equity lines of credit 193,413 3,412 7.15% 192,128 2,522 5.32% 890 17 873
Installment loans 5,322 189 14.42% 12,253 358 11.83% (169) (276) 107
---------- ------- ----- ---------- ------- ----- ------ ------- ------
Loans, net of unearned income 1,495,867 24,362 6.53% 1,251,553 19,990 6.40% 4,372 6,368 (1,996)
Total interest
earning assets 2,819,811 41,443 5.89% 2,754,905 35,881 5.22% 5,562 (1,685) 7,247
------- ----- ------- ----- ------ ------- ------
Allowance for loan losses (44,529) (48,883)
Cash & non-interest
earning assets 123,060 136,290
---------- ----------
Total assets $2,898,342 $2,842,312
========== ==========
Liabilities and
shareholders' equity
Deposits:
Interest Bearing
Checking Accounts $ 294,506 284 0.39% $ 323,972 387 0.48% (103) (34) (69)
Money market accounts 202,855 1,840 3.68% 147,278 440 1.21% 1,400 218 1,182
Savings 718,844 2,366 1.34% 818,542 1,714 0.85% 652 (175) 827
Time deposits 1,095,128 9,929 3.68% 989,442 7,089 2.91% 2,840 817 2,023
---------- ------- ----- ---------- ------- ----- ------ ------- ------
Total interest
bearing deposits 2,311,333 14,419 2.53% 2,279,234 9,630 1.71% 4,789 826 3,963
Short-term borrowings 91,752 778 3.44% 82,462 394 1.94% 384 49 335
Long-term debt 82 1 5.29% 109 1 5.29% - - -
---------- ------- ----- ---------- ------- ----- ------ ------- ------
Total Interest
Bearing Liabilities 2,403,167 15,198 2.56% 2,361,805 10,025 1.72% 5,173 875 4,298
------- ------- ------ ------- ------
Demand deposits 241,903 226,403
Other liabilities 28,242 25,566
Shareholders' equity 225,030 228,538
---------- ----------
Total liab. &
shareholders' equity $2,898,342 $2,842,312
========== ==========
Net Interest Income 26,245 25,856 389 (2,560) 2,949
------- ------- ------ ------- ------
Net Interest Spread 3.33% 3.50%
Net Interest margin
(net interest income
to total interest
earning assets) 3.70% 3.75%
Tax equivalent adjustment (734) (996)
------- -------
Net Interest Income
per book 25,511 24,860
======= =======
24
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As detailed in the Annual Report to Shareholders as of December 31, 2005
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 months ended March 31, 2006, 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 average balance of federal
funds sold and other short-term investments has decreased to $224.9 million
in 2006 from $629.2 million in 2005. 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 securities
available for sale and loan portfolios. This trend is expected to continue
into the second quarter. The Company believes there was no significant change
to its interest rate risk during the first quarter of 2006.
Item 4. Controls and Procedures
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 systems of
controls can provide absolute assurance that all control issues and instances
of fraud, if any, will be detected.
25
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.
26
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There are no material changes to the Company's risk factors as
discussed in the Annual Report on Form 10K for the year ended
December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Maximum Number of
Shares Purchased as Part Shares that May Yet Be
Total Number of Average Price of Publicly Announced Purchased Under the
Period Shares Purchased Paid per Share Plans or Programs Plans or Programs
January 1 - January 31 30,000 $12.58 0 N/A
February 1 - February 28 125,765 $12.56 0 N/A
March 1 - March 31 - - 0 N/A
Total 155,765 $12.57 0 N/A
All 155,765 shares were purchased by other than through a publicly
announced plan or program. All purchases were made in open-market
transactions in satisfaction of the Company's obligations upon exercise of
outstanding stock options issued by the Company and for quarterly sales to
the dividend reinvestment plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submissions of Matters to Vote of Security Holders
None.
Item 5. Other Information
None.
27
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Reg S-K (Item 601)
Exhibit No. Description
---------------------------------------------------------------------
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, principal financial officer.
32 Section 1350 Certifications of Robert J. McCormick,
principal executive officer and Robert T. Cushing,
principal financial officer.
(b) Reports on Form 8-K
During the quarter ended March 31, 2006, TrustCo filed the following reports
on Form 8-K:
January 4, 2006, regarding a press release dated January 3, 2006, concerning
TrustCo's Tender Offer for obtaining control of Ballston Spa Bancorp, Inc.
January 10, 2006, regarding a press release dated January 10, 2006,
announcing the expiration of the Tender Offer for obtaining control of
Ballston Spa Bancorp, Inc.
January 17, 2006, regarding a press release dated January 17, 2006, detailing
2005 fourth quarter and full year financial results.
February 21, 2006, regarding a press release dated February 21, 2006,
declaring a cash dividend of $0.16 per share payable on April 3, 2006, to
shareholders of record at the close of business on March 3, 2006.
28
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.
TrustCo Bank Corp NY
By: /s/ Robert J. McCormick
---------------------------
Robert J. McCormick
President
and Chief Executive Officer
By: /s/ Robert T. Cushing
---------------------------
Robert T. Cushing
Executive Vice President
and Chief Financial Officer
Date: May 5, 2006
29
Exhibits Index
Reg S-K
Exhibit No. Description
----------------------------------------------------------------------------
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,
principal financial officer.
32 Section 1350 Certifications of Robert J. McCormick,
principal executive officer and Robert T. Cushing,
principal financial officer.
30