TRUSTCO BANK CORP N Y
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
For the quarterly period ended
September 30, 2023
OR
For the transition period from __________ to _________
Commission File Number
000-10592
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol (s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Yes
☐
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Yes
☐
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):
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Accelerated filer
☐
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Non-accelerated filer
☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes
☒
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Common Stock
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Number of Shares Outstanding
as of October 31, 2023 |
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$1.00 Par Value
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TrustCo Bank Corp NY
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DESCRIPTION
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PAGE NO.
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3
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Part I.
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FINANCIAL INFORMATION
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Item 1.
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Consolidated Interim Financial Statements (Unaudited):
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| 7 | ||
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| 8 | ||
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| 9 | ||
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| 10 | ||
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11
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| 51 | ||
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Item 2.
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52 | |
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Item 3.
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71 | |
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Item 4.
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71 | |
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Part II.
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OTHER INFORMATION
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Item 1.
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72 | |
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Item 1A.
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72 | |
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Item 2.
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76 | |
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Item 3.
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76 | |
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Item 4.
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76 | |
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Item 5.
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76 | |
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Item 6.
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77 | |
Statements included in this report 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 that 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.
Forward-looking statements can be identified by the use of such words as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. TrustCo wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of the date made.
In addition to factors described under Part II, Item 1A, Risk Factors, and under the
Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2022, the factors listed below, 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. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the effects
of adverse developments in the financial services industry, such as the recent bank failures and any related impact on depositor behavior, macroeconomic or geopolitical concerns related to inflation, rising interest rates and the war in Ukraine.
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• |
changes in interest rates, including recent and possible future increases fueled by inflation, may significantly impact our financial condition and results of operations;
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• |
inflationary pressures and rising prices may affect our results of operations and financial condition;
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• |
we face exposure to credit risk in our lending activities;
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• |
any downgrade in the credit rating of the U.S. government or default by the U.S. government as a result of political conflicts over legislation to raise the U.S. government’s debt limit may have a material adverse effect on us;
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• |
the soundness of other financial institutions could adversely affect us;
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• |
any government shutdown could adversely affect the U.S. and global economy and our liquidity, financial condition and earnings;
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• |
the allowance for credit losses on loans (“ACLL”) is not sufficient to cover expected loan losses, resulting in a decrease in earnings;
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• |
we may not be able to to meet the cash flow requirements of our depositors or borrowers or meet our operating cash needs to fund corporate expansion and other activities;
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• |
we are subject to claims and litigation pertaining to fiduciary responsibility and lender liability;
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• |
we are dependent upon the services of the management team;
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our disclosure controls and procedures may not prevent or detect all errors or acts of fraud;
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if the business continuity and disaster recovery plans that we have in place are not adequate to continue our operations in the event of a disaster, the business disruption can adversely impact its operations;
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our risk management framework may not be effective in mitigating risk and loss;
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a prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our operations and financial results;
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instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition;
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the trust wealth management fees we receive may decrease as a result of poor investment performance, in either relative or absolute terms, which could decrease our revenues and net earnings;
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regulatory capital rules could slow our growth, cause us to seek to raise additional capital, or both;
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changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income;
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non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions;
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changes in tax laws may adversely affect us, and the Internal Revenue Service or a court may disagree with our tax positions, which may result in adverse effects on our business, financial condition, results of operations or cash flows;
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our ability to pay dividends is subject to regulatory limitations and other limitations that may affect our ability to pay dividends to our stockholders or to repurchase our common stock;
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we may be subject to a higher effective tax rate if Trustco Realty Corp. (“Trustco Realty”) fails to qualify as a real estate investment trust (“REIT”);
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changes in accounting standards could impact reported earnings;
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strong competition within the Bank’s market areas could hurt profits and slow growth;
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consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations;
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our business could be adversely affected by third-party service providers, data breaches, and cyber-attacks;
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a failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt our businesses, and adversely impact our results of operations, liquidity and financial condition, as well as cause
reputational harm;
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unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business;
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• |
we could suffer a material adverse impact from interruptions in the effective operation of, or security breaches affecting, our computer systems;
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new lines of business or new products and services may subject us to additional risks;
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provisions in our articles of incorporation and bylaws and New York law may discourage or prevent takeover attempts, and these provisions may have the effect of reducing the market price of our stock;
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we cannot guarantee that the allocation of capital to various alternatives, including stock repurchase plans, will enhance long-term stockholder value;
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we are exposed to climate risk;
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societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers; and
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other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2022, as well as risks and uncertainties, if any, discussed elsewhere in this Form 10-Q and in our other filings made from time
to time with the SEC, or in materials incorporated therein by reference.
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You should not rely upon forward-looking statements as predictions of
future events. Although TrustCo believes that the expectations reflected in the forward
‑
looking statements are reasonable, it cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements
will be achieved or occur. 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, except to the extent required by law.
TRUSTCO BANK CORP NY
(dollars in thousands, except per share data)
| Three months ended | Nine months ended | |||||||||||||||
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September 30,
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September 30,
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2023
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2022
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2023
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2022
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Interest and dividend income:
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Interest and fees on loans
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$
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$
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$
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$
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Interest and dividends on securities available for sale:
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U. S. government sponsored enterprises
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State and political subdivisions
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Mortgage-backed securities and collateralized mortgage obligations - residential
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Corporate bonds
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Small Business Administration-guaranteed participation securities
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Other securities
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Total interest and dividends on securities available for sale
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Interest on held to maturity securities:
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Mortgage-backed securities and collateralized mortgage obligations-residential
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Total interest on held to maturity securities
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Federal
Home Loan Bank stock
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Interest on federal funds sold and other short-term investments
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Total interest income
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Interest expense:
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Interest on deposits:
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Interest-bearing checking
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Savings accounts
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Money market deposit accounts
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Time deposits
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Interest on short-term borrowings
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Total interest expense
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Net interest income
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Provision (Credt) for credit losses
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(
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(
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Net interest income after provision (credit) for credit losses
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Noninterest income:
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Trustco financial services income
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Fees for services to customers
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Other
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Total noninterest income
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Noninterest expenses:
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Salaries and employee benefits
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Net occupancy expense
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Equipment expense
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Professional services
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Outsourced services
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Advertising expense
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FDIC and other insurance
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Other real estate expense, net
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Other
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Total noninterest expenses
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Income before taxes
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Income taxes
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Net income
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$
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$
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$
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$
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Net income per share:
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- Basic
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$
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$
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$
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$
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- Diluted
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$
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$
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$
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$
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See accompanying notes to unaudited consolidated interim financial statements.
TRUSTCO BANK CORP NY
(dollars in thousands)
| Three months ended | Nine months ended | |||||||||||||||
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September 30
,
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September 30
,
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|||||||||||||||
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2023
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2022
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2023
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2022
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|||||||||||||
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Net income
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$
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$
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$
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$
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Net unrealized holding loss on securities available for sale
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(
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)
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(
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)
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(
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)
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(
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||||||||
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Tax effect
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Net unrealized loss on securities available for sale, net of tax
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(
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)
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(
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(
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(
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Amortization of net actuarial gain
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(
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)
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(
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)
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(
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(
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Amortization of prior service cost (credit)
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(
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(
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Tax effect
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Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans, net of tax
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(
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(
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(
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(
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||||||||
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Other comprehensive loss, net of tax
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
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Comprehensive income
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$
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$
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$
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$
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See accompanying notes to unaudited consolidated interim financial statements.
TRUSTCO BANK CORP NY
(dollars in thousands, except share and per share data)
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September 30, 2023
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December 31, 2022
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ASSETS:
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Cash and due from banks
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$
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$
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Federal funds sold and other short term investments
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Total cash and cash equivalents
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Securities available for sale
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Held to maturity securities ($
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| Federal Home Loan Bank stock |
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Loans, net of deferred net costs
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Less:
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Allowance for credit losses on loans
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Net loans
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Bank premises and equipment, net
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Operating lease right-of-use assets
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Other assets
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Total assets
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$
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$
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LIABILITIES:
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Deposits:
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Demand
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$
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$
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Interest-bearing checking
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Savings accounts
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Money market deposit accounts
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Time deposits
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Total deposits
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Short-term borrowings
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Operating lease liabilities
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Accrued expenses and other liabilities
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Total liabilities
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SHAREHOLDERS’ EQUITY:
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Capital stock par value $
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Surplus
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Undivided profits
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Accumulated other comprehensive loss, net of tax
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(
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)
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(
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Treasury stock at cost -
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(
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)
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(
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)
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Total shareholders’ equity
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Total liabilities and shareholders’ equity
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$
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$
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|
||||
See accompanying notes to unaudited consolidated interim financial statements.
TRUSTCO BANK CORP NY
(dollars in thousands, except per share data)
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Capital | Undivided | Comprehensive | Treasury | |||||||||||||||||||||
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Stock
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Surplus
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Profits
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Income
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Stock
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Total
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||||||||||||||||||
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Beginning balance, January 1,
2022
|
$
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|
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(
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)
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|
||||||||||||||||
| Cumulative impact of adoption of | - | - |
(
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) | - | - |
(
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) | ||||||||||||||||
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Balance, January 1, 2022 as adjusted
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||||||||||||||||||||||||
| For impact of adoption of |
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(
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) |
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|||||||||||||||||
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Net income
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Other comprehensive loss, net of tax
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(
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)
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(
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)
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Cash dividend declared, $
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(
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)
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(
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)
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||||||||||||||||
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Purchase of treasury stock
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(
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)
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(
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)
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||||||||||||||||
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Ending balance,
March 31,
2022
|
$
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|
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(
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)
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(
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)
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|
|||||||||||||||
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Net income
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||||||||||||||||||
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Other comprehensive loss, net of tax
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(
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)
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(
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)
|
||||||||||||||||
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Cash dividend declared, $
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|
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(
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)
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(
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)
|
||||||||||||||||
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Purchase of treasury stock
|
|
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
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Ending balance,
June 30,
2022
|
$
|
|
|
|
(
|
)
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(
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)
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|
|||||||||||||||
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Net income
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||||||||||||||||||
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Other comprehensive loss, net of tax
|
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|
|
(
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)
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(
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)
|
||||||||||||||||
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Cash dividend declared, $
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|
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(
|
)
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|
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(
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)
|
||||||||||||||||
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Purchase of treasury stock
|
|
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
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|
||||||||||||||||||||||||
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Ending balance,
September 30
,
2022
|
$
|
|
|
|
(
|
)
|
(
|
)
|
|
|||||||||||||||
|
Beginning balance, January 1,
2023
|
$
|
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
(
|
)
|
$ |
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash dividend declared, $
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
|
||||||||||||||||||||||||
|
Ending balance,
March
31,
2023
|
$
|
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
(
|
)
|
$ |
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive loss, net of tax
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Cash dividend declared, $
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Ending balance, June 30,
2023
|
$
|
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
(
|
)
|
$ |
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive loss, net of tax
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Cash dividend declared, $
|
|
|
(
|
) |
|
|
(
|
) | ||||||||||||||||
|
Ending balance,
September 30
,
2023
|
$
|
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
(
|
)
|
$ |
|
||||||||||
See accompanying notes to unaudited consolidated interim financial statements.
TRUSTCO BANK CORP NY
(dollars in thousands)
|
|
Nine months ended September 30,
|
|||||||
|
2023
|
2022
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Depreciation
|
|
|
||||||
|
Amortization of right-of-use asset
|
|
|
||||||
|
Net gain on sale of other real estate owned
|
(
|
)
|
(
|
)
|
||||
|
Writedown of other real estate owned
|
|
|
||||||
|
Credit provision for credit losses
|
(
|
)
|
(
|
)
|
||||
|
Deferred tax expense
|
|
|
||||||
|
Net amortization of securities
|
|
|
||||||
|
Net gain on sale of bank premises and equipment
|
|
(
|
) | |||||
|
Decrease in taxes receivable
|
|
|
||||||
|
Increase in interest receivable
|
(
|
)
|
(
|
)
|
||||
|
Increase
(decrease) in interest payable
|
|
(
|
)
|
|||||
|
Increase in other assets
|
(
|
)
|
(
|
)
|
||||
|
Decrease in operating lease liabilities
|
(
|
)
|
(
|
)
|
||||
|
Decrease in accrued expenses and other liabilities
|
(
|
)
|
(
|
)
|
||||
|
Total adjustments
|
(
|
)
|
|
|||||
|
Net cash provided by operating activities
|
|
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Proceeds from sales, paydowns and calls of securities available for sale
|
|
|
||||||
|
Proceeds from paydowns of held to maturity securities
|
|
|
||||||
|
Purchases of securities available for sale
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from maturities of securities available for sale
|
|
|
||||||
|
Purchases of Federal Home Loan Bank stock
|
(
|
) |
(
|
) | ||||
|
Net increase in loans
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from dispositions of other real estate owned
|
|
|
||||||
|
Proceeds from dispositions of bank premises and equipment
|
|
|
||||||
|
Purchases of bank premises and equipment
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Net increase in deposits
|
|
|
||||||
|
Net change in short-term borrowings
|
(
|
)
|
(
|
)
|
||||
|
Purchases of treasury stock
|
|
(
|
)
|
|||||
|
Dividends paid
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by (used in) financing activities
|
|
(
|
)
|
|||||
|
Net increase in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents at beginning of period
|
|
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
|
Supplemental Disclosure of Cash Flow Information:
|
||||||||
|
Cash paid during the year for:
|
||||||||
|
Interest paid
|
$
|
|
$
|
|
||||
|
Income taxes paid
|
|
|
||||||
|
Other non cash items:
|
||||||||
|
Transfer of loans to other real estate owned
|
|
|
||||||
|
Increase (decrease) in dividends payable
|
|
(
|
) | |||||
|
Change in unrealized (loss) gain on securities available for sale-gross of deferred taxes
|
(
|
)
|
(
|
)
|
||||
|
Change in deferred tax effect on unrealized loss (gain) on securities available for sale
|
|
|
||||||
|
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans
|
(
|
)
|
(
|
)
|
||||
|
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans
|
|
|
||||||
| Securities purchased settled in subsequent period |
(
|
) |
|
|||||
|
Impact to retained earnings from adoption of ASC 326, net of tax
|
|
(
|
) | |||||
See accompanying notes to unaudited consolidated interim financial statements.
(1)
Financial Statement Presentation
The unaudited Consolidated
Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the Company’s subsidiary, Trustco Bank (also referred to as the “Bank”) and other subsidiaries after elimination of all significant
intercompany accounts and transactions. Prior period amounts are reclassified when necessary to conform to the current period presentation. The net income reported for the three and nine months ended September 30, 2023 is not necessarily indicative
of the results that may be expected for the year ending December 31, 2023, or any interim periods. These financial statements consider events that occurred through the date of filing.
In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements
contain all recurring adjustments necessary to present fairly the financial position as of September 30, 2023, the results of operations for the three and nine months ended September 30, 2023 and 2022, and the cash flows for the nine months ended
September 30, 2023 and 2022. The accompanying unaudited Consolidated Interim Financial Statements should be read in conjunction with the Company’s year-end audited Consolidated Financial Statements, including notes thereto, which are included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the applicable rules of the Securities and Exchange
Commission (“SEC”) and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally
accepted in the United States. Results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
The accounting policies of the Company, as applied in the Consolidated Interim Financial Statements presented herein, are substantially the same as those followed on
an annual basis in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023.
Risks and Uncertainties:
In early 2023 certain banks were placed into receivership by the FDIC and
one
bank began to voluntarily dissolve. While the U.S. government intervened to cover depositors, even those with balances exceeding FDIC insurance coverage, there can be no guarantee that the
same coverage will be applied if there are future bank failures. Management believes that the conditions impacting these banks do not present a significant risk to the Company, and the Company has not been directly impacted by the bank failures.
Present economic conditions have caused disruption to the banking system and any additional implications are uncertain. The Company believes that it has sufficient liquid assets and borrowing sources should there be a liquidity need.
(2) Earnings Per Share
The Company computes earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260,
Earnings Per Share
(“ASC 260”).
A reconciliation of the component parts of earnings per share for the three and nine months ended September 30, 2023 and 2022 is as follows:
| (in thousands, except per share data) | For the three months ended | For the nine months ended | ||||||||||||||
|
September 30
,
|
September 30
,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Weighted average common shares
|
|
|
|
|
||||||||||||
|
Stock Options
|
|
|
|
|
||||||||||||
|
Weighted average common shares including potential dilutive shares
|
|
|
|
|
||||||||||||
|
Basic EPS
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Diluted EPS
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
For both the three and nine months ended September 30, 2023 there were
77
thousand weighted average antidilutive stock options excluded from dilutive earnings. For both the three and nine months ended September 30, 2022 there were
60
thousand weighted average antidilutive stock options excluded from dilutive earnings. The stock options are antidilutive because the strike price is greater than the average fair value
of the Company’s common stock for the periods presente
d
.
(3) Benefit Plans
The table below outlines the components of the Company’s net periodic benefit recognized during the three and nine months ended September 30, 2023 and 2022 for its
pension and other postretirement benefit plan
s
:
|
Three months ended
September 30
,
|
||||||||||||||||
|
Pension Benefits
|
Other Postretirement Benefits
|
|||||||||||||||
|
(dollars in thousands)
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
|
||||||||||||||||
|
Service cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest cost
|
|
|
|
|
||||||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Amortization of net gain
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amortization of prior service cost (credit)
|
|
|
|
(
|
)
|
|||||||||||
|
Net periodic benefit
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
|
Nine months ended
September 30
,
|
|||||||||||||||
|
|
Pension Benefits
|
Other Postretirement Benefits
|
||||||||||||||
|
(dollars in thousands)
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
|
||||||||||||||||
|
Service cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest cost
|
|
|
|
|
||||||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Amortization of net gain
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amortization of prior service cost (credit)
|
|
|
|
(
|
)
|
|||||||||||
|
Net periodic benefit
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
The
Company does not expect to contribute to its pension and postretirement benefit plans in 2023. As of
September
30, 2023
,
no
contributions have been made, however,
this decision is reviewed each quarter and is subject to change based upon market conditions.
Since 2003, the Company has not subsidized retiree medical insurance premiums. However, it continues to provide medical benefits and postretirement medical benefits to a
limited number of current and retired executives in accordance with the terms of their employment contracts.
(4) Investment Securities
(a) Securities available for sale
The amortized cost and fair value of the securities available for sale are as follows:
|
September 30
,
2023
|
||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
|
(dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
|
|
|
|
||||||||||||
|
Corporate bonds
|
|
|
|
|
||||||||||||
|
Small Business Administration - guaranteed participation securities
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total Securities Available for Sale
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
December 31,
2022
|
||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
|
(dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
|
|
|
|
||||||||||||
|
Corporate bonds
|
|
|
|
|
||||||||||||
|
Small Business Administration - guaranteed participation securities
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total Securities Available for Sale
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The
following table categorizes the debt securities included in the available for sale portfolio as of
September 30, 2023
,
based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay
their obligations without penalty. Securities not due at a single maturity date are presented separately:
| Amortized | Fair | |||||||
|
(dollars in thousands)
|
Cost
|
Value
|
||||||
|
Due in one year or less
|
$
|
|
$
|
|
||||
|
Due after one year through five years
|
|
|
||||||
| Due after five years through ten years |
|
|
||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
|
|
||||||
|
Small Business Administration - guaranteed participation securities
|
|
|
||||||
|
$
|
|
$
|
|
|||||
Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized
loss position, were as follows:
|
September 30
,
2023
|
||||||||||||||||||||||||
| Less than | 12 months |
|
||||||||||||||||||||||
|
12 months
|
or more
|
Total
|
||||||||||||||||||||||
| Gross |
|
Gross |
|
Gross | ||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unreal. | |||||||||||||||||||
|
(dollars in thousands)
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
||||||||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate bonds
|
|
|
|
|
|
|
||||||||||||||||||
|
Small Business Administration - guaranteed participation securities
|
|
|
|
|
|
|
||||||||||||||||||
| Other |
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
December 31,
2022
|
||||||||||||||||||||||||
| Less than | 12 months | |||||||||||||||||||||||
|
12 months
|
or more
|
Total
|
||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unreal. | |||||||||||||||||||
|
(dollars in thousands)
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
||||||||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate bonds
|
|
|
|
|
|
|
||||||||||||||||||
| Other |
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
There were
no
allowance for credit losses recorded for securities available for sale during the three or nine months ended September 30, 2023.
The proceeds from sales and calls and maturities of securities
available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended
September
30, 2023 and 2022 are as follows:
|
Three months ended September 30,
|
||||||||
|
(dollars in thousands)
|
2023
|
2022
|
||||||
|
Proceeds from sales
|
$
|
|
|
|
||||
|
Proceeds from calls/paydowns
|
|
|
||||||
|
Proceeds from maturities
|
|
|
||||||
|
Gross realized gains
|
|
|
||||||
|
Gross realized losses
|
|
|
||||||
|
Nine months ended September 30,
|
||||||||
|
(dollars in thousands)
|
2023
|
2022
|
||||||
|
Proceeds from sales
|
$
|
|
|
|
||||
|
Proceeds from calls/paydowns
|
|
|
||||||
|
Proceeds from maturities
|
|
|
||||||
|
Gross realized gains
|
|
|
||||||
|
Gross realized losses
|
|
|
||||||
There were
no
transfers of securities available for sale during the three and nine months ended
September
30, 2023 and 2022.
(b) Held to maturity securities
The amortized cost and fair value of the held to maturity securities are as follows:
|
September 30
,
2023
|
||||||||||||||||
| Gross | Gross |
|
||||||||||||||
| Amortized | Unrecognized | Unrecognized | Fair | |||||||||||||
|
(dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
$
|
|
|
|
|
|||||||||||
|
Total held to maturity
|
$
|
|
|
|
|
|||||||||||
|
December 31,
2022
|
||||||||||||||||
| Gross | Gross |
|
||||||||||||||
| Amortized | Unrecognized | Unrecognized | Fair | |||||||||||||
|
(dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
$
|
|
|
|
|
|||||||||||
|
Total held to maturity
|
$
|
|
|
|
|
|||||||||||
The following table categorizes the
debt securities included in the
held to maturity portfolio as
of September 30, 2023, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single
maturity date are presented separately:
| (dollars in thousands) | Amortized | Fair | ||||||
|
Cost
|
Value
|
|||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
$
|
|
|
|||||
|
$
|
|
|
||||||
Gross unrecognized losses on held to maturity securities and the related fair values aggregated by the length of time that individual securities have been in an
unrealized loss position, were as follows:
|
September 30, 2023
|
||||||||||||||||||||||||
|
Less than
|
12 months
|
|||||||||||||||||||||||
|
(dollars in thousands)
|
12 months
|
or more
|
Total
|
|||||||||||||||||||||
|
|
Gross
|
Gross
|
Gross
|
|||||||||||||||||||||
|
|
Fair
|
Unrec.
|
Fair
|
Unrec.
|
Fair
|
Unrec.
|
||||||||||||||||||
|
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
||||||||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
$
|
|
|
|
|
|
|
|||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$
|
|
|
|
|
|
|
|||||||||||||||||
|
December 31, 2022
|
||||||||||||||||||||||||
|
Less than
|
12 months
|
|||||||||||||||||||||||
|
(dollars in thousands)
|
12 months
|
or more
|
Total
|
|||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
|
Fair
|
Unrec.
|
Fair
|
Unrec.
|
Fair
|
Unrec.
|
|||||||||||||||||||
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
|||||||||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
$
|
|
|
|
|
|
|
|||||||||||||||||
|
Total
|
$
|
|
|
|
|
|
|
|||||||||||||||||
There were
no
sales or transfers of held to
maturity securities during the three and nine months ended
September
30, 2023 and 2022.
There were
no
allowance for credit losses recorded
for held to maturity securities during the three and nine months ended
September
30, 2023. As of
September 30, 2023, there
were
no
securities on non-accrual status and all securities were performing in
accordance with contractual terms.
(c) Other-Than-Temporary Impairment
Debt Securities
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant
such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model.
In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than
cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or it is more likely than not it
will be required to sell the debt security before its anticipated recovery. The assessment of whether any other
‑
than
‑
temporary
decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required
to sell the security before recovery of its amortized cost basis. If management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be
recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity
will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI
related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings through the provision for credit losses. The amount of the total OTTI related to other factors is recognized in
other comprehensive income, net of applicable taxes.
The Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of
September
30, 2023. The Company’s ability and intent
to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low turnover in the portfolio.
As of
September
30, 2023, the Company’s security portfolio included certain securities which were in an unrealized loss position, and are discussed below.
U.S. government sponsored enterprises:
In the case of unrealized losses on U.S. government
sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required
to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at
September
30, 2023.
Mortgage backed securities and collateralized mortgage obligations – residential:
At
September
30, 2023, all mortgage backed securities and
collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support.
Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities
before their anticipated recovery, the Company does not consider these securities to be other‑than‑temporarily impaired at
September
30, 2023.
Small Business Administration (SBA) - guaranteed participation securities:
At September 30,
2023, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company
does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at
September 30, 2023.
Corporate Bonds & Other:
At September 30, 2023, corporate bonds held by the Company are
investment grade quality. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be
required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2023.
(5) Loan Portfolio and Allowance for Credit Losses
The following tables presents loans by portfolio segment:
|
|
September 30, 2023
|
|||||||||||
| (dollars in thousands) |
New York and
|
|||||||||||
|
|
other states*
|
Florida
|
Total
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
||||||
|
Other
|
|
|
|
|
||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|
||||||||
|
Home equity loans
|
|
|
|
|
||||||||
|
Home equity lines of credit
|
|
|
|
|
||||||||
|
Installment
|
|
|
|
|
||||||||
|
Total loans, net
|
$
|
|
$
|
|
|
|||||||
|
Less: Allowance for credit losses
|
|
|||||||||||
|
Net loans
|
$
|
|
||||||||||
*
Includes New York, New Jersey,
Vermont and Massachussetts.
|
|
December 31, 2022
|
|||||||||||
| (dollars in thousands) |
New York and
|
|||||||||||
|
|
other states*
|
Florida
|
Total
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
||||||
|
Other
|
|
|
|
|||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Installment
|
|
|
|
|||||||||
|
Total loans, net
|
$
|
|
$
|
|
|
|||||||
|
Less: Allowance for credit losses
|
|
|||||||||||
|
Net loans
|
$
|
|
||||||||||
*
Includes New York, New Jersey, Vermont
and Massachussetts.
Included in commercial loans above are Paycheck Protection Program (“PPP”) loans totaling $
688
thousand and $
1.0
Million as of September
30, 2023
and
December
31, 2022
, respectively.
At
September 30, 2023
and
December
31, 2022
, the Company had approximately
$
29.3
million and $
36.4
million, respectively, of real estate construction loans. Of the $
29.3
million in real estate construction loans at
September 30, 2023
, approximately
$
7.8
million are secured by first mortgages to residential borrowers while approximately $
21.5
million were to commercial borrowers for residential construction projects. Of the $
36.4
million in real estate construction loans at December 31, 2022, approximately $
14.1
million are secured by first mortgages to residential borrowers while approximately $
22.3
million were to commercial borrowers for
residential construction projects. The vast majority of construction loans were in the Company’s New York market.
Allowance for credit losses on loans
The level of the ACLL is
based on factors that influence management’s current estimate of expected credit losses, including past events and current conditions.
There were no changes in the Company’s methodology for the allowance for credit losses on loans for the period ended September 30, 2023.
Consistent with
the Company’s economic modeling as
of
adoption date, the Company has determined the Stagflation forecast scenario to be appropriate for the September 30, 2023 ACLL calculation. The Company selected the Stagflation economic forecast for credit losses as management expects
that markets will experience a slight decline in economic conditions and a slight increase in the unemployment rate over the next two years.
T
he Company recorded a provision for credit
losses of $
100
thousand for the three months ended September 30, 2023, which is the result
a provision for credit losses on loans of $
300
thousand, and a benefit for credit losses on unfunded commitments of
$
200
thousand. The Company recorded a benefit for credit losses of $
100
thousand for the nine months ended September 30, 2023, which is the result of a provision for credit losses on loans of $
900
thousand,
offset by a benefit
for credit losses on unfunded commitments of $
1.0
million.
The Company recorded a provision for credit
losses of $
300
thousand for the three months ended September 30, 2022, which includes a provision for credit losses on loans of $
100
thousand, and a provision for credit losses on unfunded commitments of $
200
thousand. The Company recorded a benefit for credit losses of $
391
thousand for the nine months ended September 30, 2022, which includes a credit to provision for credit losses on loans of $
1.4
million,
offset by a provision for credit losses on unfunded commitments of $
1.0
million.
Activity in the allowance for credit losses on loans by portfolio segment for the three months ended September 30, 2023 is summarized as follows:
|
|
For the three months ended
September 30
, 2023
|
|||||||||||||||
| ( dollars in thousand s) |
Real Estate
|
|||||||||||||||
|
Mortgage-
|
||||||||||||||||
|
|
Commercial
|
1 to 4 Family
|
Installment
|
Total
|
||||||||||||
| Balance at beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Loans charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total loan chargeoffs
|
|
|
|
|
||||||||||||
|
Recoveries of loans previously charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total recoveries
|
|
|
|
|
||||||||||||
|
Net loans (recoveries) charged off
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||
|
(Credit)
provision for credit losses
|
|
|
|
|
|
|||||||||||
|
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
* Includes New York, New Jersey, Vermont and Massachusetts.
Activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2022
is summarized as follows:
|
For the three months ended
September 30
,
2022
|
||||||||||||||||
| ( dollars in thousand s) |
Real Estate
|
|||||||||||||||
|
Mortgage-
|
||||||||||||||||
|
|
Commercial
|
1 to 4 Family
|
Installment
|
Total
|
||||||||||||
|
Balance at beginning of period
|
$
|
|
|
|
|
|||||||||||
|
Loans charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total loan chargeoffs
|
|
|
|
|
||||||||||||
|
Recoveries of loans previously charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total recoveries
|
|
|
|
|
||||||||||||
|
Net loan
recoveries
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
(Credit) provision for credit losses
|
|
(
|
)
|
|
|
|
||||||||||
|
Balance at end of period
|
$
|
|
|
|
|
|||||||||||
*
Includes New York, New Jersey, Vermont and Massachusetts.
Activity in the allowance for credit losses on loans by portfolio segment
for the nine months ended September 30, 2023 is summarized as follows:
|
For the
nine
months ended
September 30
,
2023
|
||||||||||||||||
|
(dollars in thousands)
|
Real Estate
|
|||||||||||||||
|
Mortgage-
|
||||||||||||||||
|
Commercial
|
1 to 4 Family
|
Installment
|
Total
|
|||||||||||||
|
Balance at beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Loans charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total loan chargeoffs
|
|
|
|
|
|
|
|
|
||||||||
|
Recoveries of loans previously charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total recoveries
|
|
|
|
|
||||||||||||
|
Net loans (recoveries) charged off
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
|
(Credit) provision for credit losses
|
(
|
)
|
|
|
|
|||||||||||
|
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
* Includes New York, New Jersey, Vermont and Massachusetts.
Activity in the allowance for loan losses by portfolio segment for the nine months ended
September 30, 2022 is summarized as follows:
|
For the
nine
months ended
September 30
,
2022
|
||||||||||||||||
|
(dollars in thousands)
|
Real Estate
|
|||||||||||||||
|
Mortgage-
|
||||||||||||||||
|
Commercial
|
1 to 4 Family
|
Installment
|
Total
|
|||||||||||||
|
Balance at beginning of period
|
$
|
|
|
|
|
|||||||||||
|
Impact of ASU 2016-13, Current Expected Credit Loss (CECL)
|
|
(
|
) |
|
(
|
) |
|
|||||||||
|
Balance as of January 1, 2022 as adjuste dfor ASU 2016-13
|
$ |
|
|
|
|
|||||||||||
|
Loans charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total loan chargeoffs
|
|
|
|
|
||||||||||||
|
Recoveries of loans previously charged off:
|
||||||||||||||||
|
New York and other states*
|
|
|
|
|
||||||||||||
|
Florida
|
|
|
|
|
||||||||||||
|
Total recoveries
|
|
|
|
|
||||||||||||
|
Net loan recoveries
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
(Credit) provision for loan losses
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Balance at end of period
|
$
|
|
|
|
|
|||||||||||
* Includes New York, New Jersey, Vermont and Massachusetts.
The following tables present the balance in the allowance for
credit losses on loans by portfolio segment and based on impairment evaluation as of September 30, 2023 and December 31, 2022:
|
As of
September 30
,
2023
|
||||||||||||||||
| ( dollars in thousand s) |
1-to-4 Family
|
|||||||||||||||
|
Commercial
|
Residential | Installment | ||||||||||||||
|
|
Loans
|
Real Estate
|
Loans
|
Total
|
||||||||||||
|
Allowance for credit losses on loans:
|
||||||||||||||||
|
Ending allowance balance attributable to loans:
|
||||||||||||||||
|
Individually evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
||||||||||||
|
Total ending allowance balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Loans:
|
||||||||||||||||
|
Individually evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
||||||||||||
|
Total ending loans balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
As of December 31,
2022
|
||||||||||||||||
| ( dollars in thousand s) |
1-to-4 Family
|
|||||||||||||||
| Commercial | Residential | Installment | ||||||||||||||
|
|
Loans
|
Real Estate
|
Loans
|
Total
|
||||||||||||
|
Allowance for credit losses on loans:
|
||||||||||||||||
|
Ending allowance balance attributable to loans:
|
||||||||||||||||
|
Individually evaluated for impairment
|
$
|
|
|
|
|
|||||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
||||||||||||
|
Total ending allowance balance
|
$
|
|
|
|
|
|||||||||||
|
Loans:
|
||||||||||||||||
|
Individually evaluated for impairment
|
$
|
|
|
|
|
|||||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
||||||||||||
|
Total ending loans balance
|
$
|
|
|
|
|
|||||||||||
The Company’s allowance for credit losses on unfunded commitments is recognized as a
liability (accrued expenses and other liabilities) with adjustments to the reserve recognized in (credit) provision for credit losses in the consolidated income statement.
The Company’s activity in the allowance for credit losses on
unfunded commitments for the three and nine months ended September 30, 2023 and 2022 was as follows:
| (In thousands) |
For the three
months ended
September 30, 2023
|
|||
| Balance at June 30, 2023 |
$
|
|
||
| (Credit) provision for credit losses |
(
|
)
|
||
| Balance at September 30, 2023 |
$
|
|
||
| (In thousands) |
For the nine
months ended
September 30, 2023
|
|||
| Balance at January 1, 2023 |
$
|
|
||
| (Credit) provision for credit losses |
(
|
)
|
||
| Balance at September 30, 2023 |
$
|
|
||
| (In thousands) |
For the three
months ended
September 30, 2022
|
|||
| Balance at June 30, 2022 |
$
|
|
||
| Provision for credit losses |
|
|||
| Balance at September 30, 2022 |
$
|
|
||
|
(In thousands)
|
For the nine
months ended
September 30, 2022
|
|||
|
Balance at January 1, 2022
|
$
|
|
||
|
Impact of Adopting CECL
|
|
|||
|
Adjusted Balance at January 1, 2022
|
$
|
|
||
|
Provision for credit losses
|
|
|||
|
Balance at September 30, 2022
|
$
|
|
||
Loan Credit Quality
The Company categorizes commercial loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience,
credit documentation, public information, and current economic trends, among other factors. On at least an annual basis, the Company’s loan grading process analyzes non-homogeneous loans, such as commercial loans and commercial real estate
loans, individually by grading the loans based on credit risk. The loan grades assigned to all loan types are tested by the Company’s internal loan review department in accordance with the Company’s internal loan review policy.
The Company uses the following definitions for classified loans:
Special Mention
: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
Substandard : Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as such have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Substandard : Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as such have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful
: Loans classified as doubtful have all the weaknesses inherent in those loans classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on
the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be “pass” rated loans.
For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios.
Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for credit losses on loans. The payment status of these homogeneous pools as of
September 30, 2023 and December 31, 2022 is also included in the aging of the past due loans table. Nonperforming loans shown in the table below were loans on non-accrual status and loans over 90 days past due and accruing.
As of September 30, 2023, and December 31, 2022 and based on the most recent analysis performed, the risk category of loans by class of loans,
and gross charge-offs year to date for each loan type by origination year was as follows:
|
(in
thousands)
|
As of September 30, 2023 | |||||||||||||||||||||||||||||||||||
|
|
Term Loans Amortized Cost Basis by Origination
Year
|
|||||||||||||||||||||||||||||||||||
|
2023
|
2022
|
2021
|
2020
|
2019
|
Prior
|
Revolving
Loans
Amortized
Cost Basis
|
Revolving
Loan
Converted to Term
|
Total
|
||||||||||||||||||||||||||||
|
Commercial :
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special
Mention
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
Total
Commercial Loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial
Loans:
|
||||||||||||||||||||||||||||||||||||
|
Current-period
Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
|
Commercial
Other:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special
mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
Commercial Real Estate Loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Other
Commercial Loans:
|
||||||||||||||||||||||||||||||||||||
|
Current-period
Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
|
Residential
First Mortgage:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total First
Mortgage:
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Residential
First Mortgage Loans:
|
||||||||||||||||||||||||||||||||||||
|
Current-period
Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
||||||||||||||||||
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|||||||||||||||||||
|
Home Equity
Loans:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Home
Equity Loans:
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Home Equity
Loans:
|
||||||||||||||||||||||||||||||||||||
|
Current-period
Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
|
Home Equity
Lines of Credit:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Home
Equity Credit Lines:
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Home Equity
Lines of Credit:
|
||||||||||||||||||||||||||||||||||||
|
Current-period
Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
|
Installments:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
Installments
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Installments
Loans:
|
||||||||||||||||||||||||||||||||||||
|
Current-period
Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
|
(in thousands)
|
As of December 31, 2022
|
|||||||||||||||||||||||||||||||||||
|
Term Loans Amortized Cost Basis by Origination Year
|
||||||||||||||||||||||||||||||||||||
|
Commercial :
|
2022
|
2021
|
2020
|
2019
|
2018
|
Prior
|
Revolving Loans Amortized Cost Basis
|
Revolving Loan Converted to Term
|
Total
|
|||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial Loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| Commercial Loans: | ||||||||||||||||||||||||||||||||||||
|
Current-period Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial Other:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial Real Estate Loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Other Commercial Loans:
|
||||||||||||||||||||||||||||||||||||
|
Current-period Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Residential First Mortgage:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total First Mortgage:
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| Residential First Mortgage Loans: | ||||||||||||||||||||||||||||||||||||
|
Current-period Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Home Equity Loans:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Home Equity Loans:
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| Home Equity Lines Loans: | ||||||||||||||||||||||||||||||||||||
|
Current-period Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Home Equity Credit Lines:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Home Equity Credit Lines:
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| Home Equity Credit Lines Loans: | ||||||||||||||||||||||||||||||||||||
|
Current-period Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Installments:
|
||||||||||||||||||||||||||||||||||||
|
Risk rating
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Installments
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| Installments Loans: | ||||||||||||||||||||||||||||||||||||
|
Current-period Gross writeoffs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
The following tables present the aging
of the amortized cost in past due loans by loan class and by region as of September 30,2023 and December 31,2022:
|
As of
September 30
,
2023
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
New York and other states*:
|
30-59
|
60-89
|
90 +
|
Total | ||||||||||||||||||||
| Days | Days | Days |
30+ days
|
Total | ||||||||||||||||||||
|
(dollars in thousands)
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Loans
|
||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||
|
Commercial real estate
|
$
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Other
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|
||||||||||||||||||
|
Installment
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Florida:
|
30-59
|
60-89
|
90 +
|
Total | ||||||||||||||||||||
| Days | Days | Days |
30+ days
|
Total | ||||||||||||||||||||
|
(dollars in thousands)
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Loans
|
||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||
|
Commercial real estate
|
$
|
|
|
$ |
|
$ |
|
$
|
|
$ |
|
$ |
|
|||||||||||
|
Other
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|
||||||||||||||||||
|
Installment
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$
|
|
||||||||||||
|
Total:
|
30-59
|
60-89
|
90 +
|
Total | ||||||||||||||||||||
| Days | Days | Days |
30+ days
|
Total | ||||||||||||||||||||
|
(dollars in thousands)
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Loans
|
||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$ |
|
$ |
|
$ |
|
$
|
|
||||||||||||
|
Other
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|
||||||||||||||||||
|
Installment
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$
|
|
||||||||||||
* Includes New York, New Jersey, Vermont and Massachusetts.
|
As of December 31,
2022
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
New York and other states*:
|
30-59
|
60-89
|
90 +
|
Total | ||||||||||||||||||||
| Days | Days | Days |
30+ days
|
Total | ||||||||||||||||||||
|
(dollars in thousands)
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Loans
|
||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||
|
Commercial real estate
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|
||||||||||||||||||
|
Installment
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
| Florida: |
30-59
|
60-89
|
90 +
|
Total | ||||||||||||||||||||
| Days | Days | Days |
30+ days
|
Total | ||||||||||||||||||||
|
(dollars in thousands)
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Loans
|
||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||
|
Commercial real estate
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|
||||||||||||||||||
|
Installment
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total:
|
30-59
|
60-89
|
90 +
|
Total | ||||||||||||||||||||
| Days | Days | Days |
30+ days
|
Total | ||||||||||||||||||||
|
(dollars in thousands)
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Loans
|
||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||
|
Commercial real estate
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|
||||||||||||||||||
|
Installment
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
* Includes New York, New Jersey, Vermont and Massachusetts.
At
September 30, 2023 and December 31, 2022, there were no loans that were
90
days past due and still accruing interest. As a
result, non-accrual loans include all loans 90 days or more past due, as well as certain loans less than 90 days past due that were placed on non-accrual status for reasons other than delinquent status. There are
no
commitments to extend further credit on non-accrual or restructured loans.
The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of
the property (through foreclosure or through a deed in lieu). Other real estate owned is included in other assets on the Balance Sheet. As of September 30,2023 other real estate owned included $
1.2
million of residential foreclosed properties. In addition, non-accrual
residential mortgage loans that are in the process of foreclosure had an amortized cost of $
6.3
million as of September 30, 2023.
As of December 31, 2022, other real estate owned included $
2.1
million of residential foreclosed properties. In addition,
non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $
7.4
million as of
December 31, 2022
.
Loans
individually evaluated for impairment include non-accrual commercial loans, as well as all loan modifications. As of September 30, 2023 , there was no allowance for credit losses based on the loan individually evaluated for impairment.
Residential
and installment non-accrual loans which are not loan modifications are collectively evaluated to determine the allowance for credit loss.
The following table presents the amortized cost basis in non-accrual loans by portfolio segment:
|
As of
September 30
,
2023
|
||||||||||||
| (dollars in thousands) |
New York and
|
|||||||||||
|
|
other states*
|
Florida
|
Total
|
|||||||||
|
Loans in non-accrual status:
|
||||||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
||||||
|
Other
|
|
|
|
|
||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Installment
|
|
|
|
|||||||||
|
Total non-accrual loans
|
|
|
|
|||||||||
|
Restructured real estate mortgages - 1 to 4 family
|
|
|
|
|||||||||
|
Total nonperforming loans
|
$
|
|
$
|
|
$
|
|
||||||
* Includes New York, New Jersey,
Vermont and Massachusetts.
|
As of December 31,
2022
|
||||||||||||
|
(dollars in thousands)
|
New York and
|
|||||||||||
|
|
other states*
|
Florida
|
Total
|
|||||||||
|
Loans in non-accrual status:
|
||||||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
||||||
|
Other
|
|
|
|
|||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Installment
|
|
|
|
|||||||||
|
Total non-accrual loans
|
|
|
|
|||||||||
|
Restructured real estate mortgages - 1 to 4 family
|
|
|
|
|||||||||
|
Total nonperforming loans
|
$
|
|
$
|
|
$
|
|
||||||
* Includes New York, New Jersey, Vermont and Massachusetts.
The following tables present the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as of September 30, 2023
and December 31,2022:
|
As of September 30, 2023
|
||||||||||||
| (dollars in thousands) |
Non-accrual With
|
Non-accrual With | Loans Past Due | |||||||||
|
No Allowance for
|
Allowance for
|
Over 89 Days
|
||||||||||
|
|
Credit Loss
|
Credit Loss
|
Still Accruing
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
|
|
||||||
|
Other
|
|
|
|
|||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Installment
|
|
|
|
|||||||||
|
Total loans, net
|
$
|
|
$
|
|
|
|
||||||
|
|
As of December
31,
2022
|
|||||||||||
|
(dollars in
thousand
s)
|
Non-accrual With
|
Non-accrual With
|
Loans Past Due
|
|||||||||
|
|
No Allowance for
|
Allowance for
|
Over
89
Days
|
|||||||||
|
|
Credit Loss
|
Credit Loss
|
Still Accruing
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
|
|
||||||
|
Other
|
|
|
|
|||||||||
|
Real estate mortgage -
1
to
4
family:
|
||||||||||||
|
First
mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Installment
|
|
|
|
|||||||||
|
Total loans, net
|
$
|
|
$
|
|
|
|
||||||
The non-accrual balance of $
821
thousand and $
1.3
million was collectively evaluated and the associated allowance for credit losses on loans was determined not to be material as of
September 30, 2023 and December 31, 2022, respectively.
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or
operation of the collateral. Expected credit losses for the collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
| As of September 30, 2023 | ||||||||||||
|
Type of Collateral
|
||||||||||||
| (dollars in thousands) |
|
|||||||||||
|
|
Real Estate
|
Investment
Securities/Cash
|
Other
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
|
|
||||||||
|
Other
|
|
|
|
|||||||||
|
Real estate mortgage - 1 to 4 family:
|
|
|
||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Installment
|
|
|
|
|||||||||
|
Total
|
$
|
|
|
|
||||||||
|
|
As of December
31,
2022
|
|||||||||||
|
|
Type of Collateral
|
|||||||||||
|
(dollars in
thousand
s)
|
||||||||||||
|
|
Real Estate
|
Investment Securities/Cash
|
Other
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
$
|
|
|
|
||||||||
|
Other
|
|
|
|
|||||||||
|
Real estate mortgage -
1
to
4
family:
|
|
|
|
|||||||||
|
First
mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Installment
|
|
|
|
|||||||||
|
Total
|
$
|
|
|
|
||||||||
The
Company has not committed to lend additio
nal amounts to customers with outstanding loans that are modified. Interest income recognized o
n loans that are individually evaluated
was not material du
ring the
three
or
nine
months ended
September
30, 2023
and
2022.
As of
September 30, 2023 and 2022
loans
individually evaluated included approximately
$
8.5
and $
9.3
million, respectively, of loans in accruing status that were identified as loan modifications in accordance with regulatory guidance related to Chapter 7 bankruptcy loans.
Pursuant to the adoption of ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures (“ASU 2022-02”), a borrower
that is experiencing financial difficulty and receives a modification in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay or a term extension in the current period needs to be disclosed.
The following table presents the amortized cost basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2023, by class and by
type of modification.
The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as
compared to the amortized cost basis of each class of financing receivable is also presented below
:
|
For the three months ended September 30, 2023
|
||||||||
|
New York and other states*:
|
||||||||
|
|
Payment
|
% of Total Class
|
||||||
|
(dollars in thousands)
|
Delay
|
of Loans
|
||||||
|
|
||||||||
|
Commercial:
|
||||||||
|
Commercial real estate
|
$
|
|
- | |||||
|
Other
|
|
- | ||||||
|
Real estate mortgage - 1 to 4 family:
|
|
- | ||||||
|
First mortgages
|
|
|
%
|
|||||
|
Home equity loans
|
|
- | ||||||
|
Home equity lines of credit
|
|
- | ||||||
|
Installment
|
|
- | ||||||
|
|
||||||||
|
Total
|
$
|
|
|
% | ||||
|
Florida:
|
||||||||
|
|
Payment
|
% of Total Class
|
||||||
|
(dollars in thousands)
|
Delay
|
of Loans
|
||||||
|
|
||||||||
|
Commercial:
|
||||||||
|
Commercial real estate
|
$
|
|
- | |||||
|
Other
|
|
- | ||||||
|
Real estate mortgage - 1 to 4 family:
|
-
|
|||||||
|
First mortgages
|
|
-
|
|
|||||
|
Home equity loans
|
|
- | ||||||
|
Home equity lines of credit
|
|
- | ||||||
|
Installment
|
|
- | ||||||
|
|
||||||||
|
Total
|
$
|
|
- | |||||
|
Total
|
||||||||
|
|
Payment
|
% of Total Class
|
||||||
|
(dollars in thousands)
|
Delay
|
of Loans
|
||||||
|
|
||||||||
|
Commercial:
|
||||||||
|
Commercial real estate
|
$
|
|
- | |||||
|
Other
|
|
- | ||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||
|
First mortgages
|
|
|
%
|
|||||
|
Home equity loans
|
|
- | ||||||
|
Home equity lines of credit
|
|
-
|
|
|||||
|
Installment
|
|
- | ||||||
|
|
||||||||
|
Total
|
$
|
|
|
% | ||||
*
Includes New York, New Jersey, Vermont and Massachusetts.
|
For the nine months ended September 30, 2023
|
||||||||
|
New York and other states*:
|
||||||||
|
|
Payment
|
% of Total Class
|
||||||
|
(dollars in thousands)
|
Delay
|
of Loans
|
||||||
|
|
||||||||
|
Commercial:
|
||||||||
|
Commercial real estate
|
$
|
|
- | |||||
|
Other
|
|
- | ||||||
|
Real estate mortgage - 1 to 4 family:
|
|
- | ||||||
|
First mortgages
|
|
|
%
|
|||||
|
Home equity loans
|
|
- | ||||||
|
Home equity lines of credit
|
|
|
% | |||||
|
Installment
|
|
- | ||||||
|
|
||||||||
|
Total
|
$
|
|
|
% | ||||
|
Florida:
|
||||||||
|
|
Payment
|
% of Total Class
|
||||||
|
(dollars in thousands)
|
Delay
|
of Loans
|
||||||
|
|
||||||||
|
Commercial:
|
||||||||
|
Commercial real estate
|
$
|
|
- | |||||
|
Other
|
|
- | ||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||
|
First mortgages
|
|
|
%
|
|||||
|
Home equity loans
|
|
- | ||||||
|
Home equity lines of credit
|
|
- | ||||||
|
Installment
|
|
- | ||||||
|
|
||||||||
|
Total
|
$
|
|
|
% | ||||
|
Total
|
||||||||
|
|
Payment
|
% of Total Class
|
||||||
|
(dollars in thousands)
|
Delay
|
of Loans
|
||||||
|
|
||||||||
|
Commercial:
|
||||||||
|
Commercial real estate
|
$
|
|
- | |||||
|
Other
|
|
- | ||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||
|
First mortgages
|
|
|
%
|
|||||
|
Home equity loans
|
|
- | ||||||
|
Home equity lines of credit
|
|
|
%
|
|||||
|
Installment
|
|
- | ||||||
|
|
||||||||
|
Total
|
$
|
|
|
% | ||||
* Includes New York, New Jersey, Vermont and Massachusetts.
The Bank monitors the performance of
loans modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.
The following table describes the performance of loans that have
been modified as of September 30, 2023:
|
As of September 30, 2023
|
||||||||||||||||||||
| New York and other states*: |
30-59
|
60-89
|
90+ | |||||||||||||||||
|
Days
|
Days
|
Days
|
||||||||||||||||||
| (dollars in thousands) | Current |
Past Due
|
Past Due
|
Past Due
|
Total | |||||||||||||||
|
Commercial:
|
||||||||||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Other
|
|
|
|
|
|
|||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|||||||||||||||
|
Installment
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
| Florida: |
30-59
|
60-89
|
90+ | |||||||||||||||||
|
Days
|
Days
|
Days
|
||||||||||||||||||
| (dollars in thousands) | Current |
Past Due
|
Past Due
|
Past Due
|
Total | |||||||||||||||
|
Commercial:
|
||||||||||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Other
|
|
|
|
|
|
|||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|||||||||||||||
|
Installment
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
| Total |
30-59
|
60-89
|
90+ | |||||||||||||||||
|
Days
|
Days
|
Days
|
||||||||||||||||||
| (dollars in thousands) | Current |
Past Due
|
Past Due
|
Past Due
|
Total | |||||||||||||||
|
Commercial:
|
||||||||||||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Other
|
|
|
|
|
|
|||||||||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||||||||||
|
First mortgages
|
|
|
|
|
|
|||||||||||||||
|
Home equity loans
|
|
|
|
|
|
|||||||||||||||
|
Home equity lines of credit
|
|
|
|
|
|
|||||||||||||||
|
Installment
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
The following tables describes the financial effect of the modifications made to
borrowers experiencing financial difficulty:
|
For the three months ended September 30, 2023
|
||||
|
Weighted
|
||||
|
New York and other states*:
|
Average
|
|||
|
Payment
|
||||
|
(dollars in thousands)
|
Delay (Months)
|
|||
|
Commercial:
|
||||
|
Commercial real estate
|
|
-
|
||
|
Other
|
-
|
|||
|
Real estate mortgage - 1 to 4 family:
|
|
|||
|
First mortgages
|
|
|||
|
Home equity loans
|
-
|
|||
|
Home equity lines of credit
|
-
|
|||
|
Installment
|
-
|
|||
|
Total
|
|
|
||
|
Weighted
|
||||
|
Florida:
|
Average
|
|||
|
Payment
|
||||
|
(dollars in thousands)
|
Delay (Months)
|
|||
|
Commercial:
|
||||
|
Commercial real estate
|
|
-
|
||
|
Other
|
-
|
|||
|
Real estate mortgage - 1 to 4 family:
|
||||
|
First mortgages
|
-
|
|||
|
Home equity loans
|
-
|
|||
|
Home equity lines of credit
|
-
|
|||
|
Installment
|
-
|
|||
|
Total
|
|
-
|
||
|
Weighted
|
||||
|
|
Average
|
|||
|
Payment
|
||||
|
(dollars in thousands)
|
Delay (Months)
|
|||
|
Commercial:
|
||||
|
Commercial real estate
|
|
-
|
||
|
Other
|
-
|
|||
|
Real estate mortgage - 1 to 4 family:
|
||||
|
First mortgages
|
|
|||
|
Home equity loans
|
-
|
|||
|
Home equity lines of credit
|
-
|
|||
|
Installment
|
-
|
|||
|
Total
|
|
|
||
* Includes New York, New Jersey, Vermont and Massachusetts.
|
For the nine months ended September 30, 2023
|
||||
|
Weighted
|
||||
|
New York and other states*:
|
Average
|
|||
|
Payment
|
||||
|
(dollars in thousands)
|
Delay (Months)
|
|||
|
Commercial:
|
||||
|
Commercial real estate
|
|
-
|
||
|
Other
|
-
|
|||
|
Real estate mortgage - 1 to 4 family:
|
|
|||
|
First mortgages
|
|
|||
|
Home equity loans
|
-
|
|||
|
Home equity lines of credit
|
|
|||
|
Installment
|
-
|
|||
|
Total
|
|
|
||
|
Weighted
|
||||
|
Florida:
|
Average
|
|||
|
Payment
|
||||
|
(dollars in thousands)
|
Delay (Months)
|
|||
|
Commercial:
|
||||
|
Commercial real estate
|
|
-
|
||
|
Other
|
-
|
|||
|
Real estate mortgage - 1 to 4 family:
|
||||
|
First mortgages
|
|
|||
|
Home equity loans
|
-
|
|||
|
Home equity lines of credit
|
-
|
|||
|
Installment
|
-
|
|||
|
Total
|
|
|
||
|
Weighted
|
||||
|
|
Average
|
|||
|
Payment
|
||||
|
(dollars in thousands)
|
Delay (Months)
|
|||
|
Commercial:
|
||||
|
Commercial real estate
|
|
-
|
||
|
Other
|
-
|
|||
|
Real estate mortgage - 1 to 4 family:
|
||||
|
First mortgages
|
|
|||
|
Home equity loans
|
-
|
|||
|
Home equity lines of credit
|
|
|||
|
Installment
|
-
|
|||
|
Total
|
|
|
||
* Includes New York, New Jersey, Vermont and Massachusetts.
As of September 30, 2023, all loans both
experiencing financial difficulty and modified during the nine months ended September 30, 2023 were current under the terms of the agreements. There were
no
commitments to lend additional funds to the borrowers and there were
no
charge-offs recorded against the loans. The Company had
no
allowance for credit losses recorded against these loans as of September 30, 2023. The Company did
no
t have any loan modifications that had a payment default during the nine months ended September 30, 2023.
Prior to the adoption of ASU
2022-02, the company accounted for loan modifications as Troubled Debt Restructurings (TDRs) and the following table presents, by class, loans that were modified as TDR’s for the three and nine months ended September 30, 2022:
|
Three months ended
September 30, 2022
|
||||||||||||
|
|
||||||||||||
| New York and other states*: |
Pre-Modification
|
Post-Modification
|
||||||||||
| Outstanding | Outstanding | |||||||||||
|
Number of
|
Recorded | Recorded | ||||||||||
|
(dollars in thousands)
|
Contracts
|
Investment
|
Investment
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
|
$
|
|
|
||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Total
|
|
$
|
|
|
||||||||
|
Florida:
|
Pre-Modification
|
Post-Modification
|
||||||||||
| Outstanding | Outstanding | |||||||||||
|
Number of
|
Recorded | Recorded | ||||||||||
|
(dollars in thousands)
|
Contracts
|
Investment
|
Investment
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
|
$
|
|
|
||||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Total
|
|
$
|
|
|
||||||||
* Includes New York, New Jersey, Vermont
and Massachusetts.
|
Nine
months ended
September 30, 2022
|
||||||||||||
|
New York and other states*:
|
Pre-Modification
|
Post-Modification
|
||||||||||
| Outstanding | Outstanding | |||||||||||
|
Number of
|
Recorded | Recorded | ||||||||||
|
(dollars in thousands)
|
Contracts
|
Investment
|
Investment
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
|
$
|
|
|
|
|||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Total
|
|
$
|
|
|
|
|||||||
|
Florida:
|
Pre-Modification
|
Post-Modification
|
||||||||||
| Outstanding | Outstanding | |||||||||||
|
Number of
|
Recorded | Recorded | ||||||||||
|
(dollars in thousands)
|
Contracts
|
Investment
|
Investment
|
|||||||||
|
Commercial:
|
||||||||||||
|
Commercial real estate
|
|
$
|
|
|
|
|||||||
|
Real estate mortgage - 1 to 4 family:
|
||||||||||||
|
First mortgages
|
|
|
|
|||||||||
|
Home equity loans
|
|
|
|
|||||||||
|
Home equity lines of credit
|
|
|
|
|||||||||
|
Total
|
|
$
|
|
|
|
|||||||
* Includes New York, New Jersey, Vermont and Massachusetts.
The addition of these TDRs did not have a significant impact on the allowance for credit losses on loans.
The nature of the modifications that resulted in them being classified as a TDR was the borrower filing for bankruptcy protection. There were
no
loans that defaulted during the
three
and nine months ended September
30,
2023
and
2022
which had been classified as a loan modification within the
prior
twelve
months.
In situations where the Bank
considers a loan modification, management determines whether the borrower is experiencing financial difficulty by performing an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future
without the modification. This evaluation is performed under the Company’s underwriting policy.
Generally, the modification of the terms of loans was the result of the borrower filing for bankruptcy
protection. Chapter
13
bankruptcies generally include the deferral of all past due amounts for a period of generally
60 months
in accordance with the bankruptcy court order. In the case of Chapter
7
bankruptcies, even though there is no modification of terms, the borrowers’ debt to the Company was discharged and they did not reaffirm the debt.
A loan is considered to be in payment default once it is
90 days
contractually past due under the modified terms. In situations involving a borrower filing for Chapter
13
bankruptcy protection, however, a loan is considered to be in payment default once it is
30 days
contractually past due, consistent with the treatment by the bankruptcy court.
(6) Fair Value of Financial Instruments
FASB Topic 820, Fair
Value Measurements
(“ASC
820
”)
de
fines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the value that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value of assets and liabilities:
Securities Available for Sale
: The fair value of securities available for sale is determined
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. This results in a Level 1 or Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual
method and is included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. The Company does not have any securities that would be designated as Level 3.
Other Real Estate Owned
: Assets acquired through loan foreclosure are initially recorded at
fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These
appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and
income data available. This results in a Level 3 classification of the inputs for determining fair value.
Individually evaluated loans
: Periodically the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those
loans. Non-recurring adjustments can also include certain adjustments for collateral-dependent loans to adjust balances to fair value and generally have had a
charge-off
through the allowance for credit losses. For collateral dependent loans, fair value is commonly based
on recent real estate appraisals.
These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust
for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value. When obtained, non-real estate collateral may be
valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s
expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Loans individually evaluated are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Indications of value for both collateral-dependent loans and other real estate owned are obtained from third party providers or the Company’s internal Appraisal Department.
All indications of value are reviewed for reasonableness by a member of the Appraisal Department for the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value via comparison with independent data sources
such as recent market data or industry-wide statistics.
There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2023 and 2022.
Assets and liabilities measured at fair value under ASC 820 on a recurring basis are summarized below:
|
Fair Value Measurements at
|
||||||||||||||||
|
September 30
,
2023
Using:
|
||||||||||||||||
| Significant | ||||||||||||||||
| Quoted Prices in | Other | Significant | ||||||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
|
(dollars in thousands)
|
Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
|
|
|
|
||||||||||||
|
Corporate bonds
|
|
|
|
|
||||||||||||
|
Small Business Administration- guaranteed participation securities
|
|
|
|
|
||||||||||||
|
Other securities
|
|
|
|
|
||||||||||||
|
Total securities available for sale
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Fair Value Measurements at
|
||||||||||||||||
|
December 31,
2022
Using:
|
||||||||||||||||
| Significant | ||||||||||||||||
| Quoted Prices in | Other | Significant | ||||||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
|
(dollars in thousands)
|
Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Securities available for sale:
|
||||||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations - residential
|
|
|
|
|
||||||||||||
|
Corporate bonds
|
|
|
|
|
||||||||||||
|
Small Business Administration- guaranteed participation securities
|
|
|
|
|
||||||||||||
|
Other securities
|
|
|
|
|
||||||||||||
|
Total securities available for sale
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Assets measured at fair value on a non-recurring basis are summarized below:
|
|
Fair Value Measurements at
|
|
|
||||||||||||||||||||
|
|
September 30, 2023 Using:
|
|
|
||||||||||||||||||||
| Significant | |||||||||||||||||||||||
| Quoted Prices in | Other | Significant | |||||||||||||||||||||
| Active Markets for | Observable | Unobservable | |||||||||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | ||||||||||||||||||||
|
(dollars in thousands)
|
Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Valuation technique
|
Unobservable inputs
|
Range (Weighted Average)
|
||||||||||||||||
|
|
|
|
|||||||||||||||||||||
|
Other real estate owned
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
%)
|
|||||||||||
|
Loans individually evaluated
|
|
|
|
|
|
N/A
|
|||||||||||||||||
|
|
Fair Value Measurements at
|
|
|
||||||||||||||||||||
|
|
December 31, 2022
Using:
|
|
|
||||||||||||||||||||
| Significant | |||||||||||||||||||||||
| Quoted Prices in | Other | Significant | |||||||||||||||||||||
| Active Markets for | Observable | Unobservable | |||||||||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | ||||||||||||||||||||
|
(dollars in thousands)
|
Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Valuation technique
|
Unobservable inputs
|
Range (Weighted Average)
|
||||||||||||||||
|
|
|
|
|||||||||||||||||||||
|
Other real estate owned
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
%)
|
|||||||||||
|
Impaired loans:
|
|||||||||||||||||||||||
|
Real estate mortgage -1 to 4 family
|
|
|
|
|
N/A
|
||||||||||||||||||
Other real estate owned, that is carried at fair value less costs to sell was approximately $
1.2
million at September 30, 2023 and consisted of residential real estate properties. There were
no
commercial real estate properties. A valuation charge of $
143
thousand is included in earnings for the nine months ended
September
30, 2023.
Of the total individually evaluated loans of $
25.6
million at September 30, 2023, there are
no
loans that are collateral
dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were
no
specific valuation allowances for these loans at
September
30, 2023. There were
no
gross charge offs related to residential individually evaluated loans included in the
table above for the three and nine months ended
September
30, 2023.
Other real estate owned, which is carried at fair value less costs to sell, was approximately $
2.1
million at December 31, 2022, and consisted of only residential real estate properties. A valuation charge of $
68
thousand is included in earnings for the year ended December 31, 2022.
Of the total
individually evaluated loans of $
25.7
million at December 31, 2022, there are
no
loans that were collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge-offs taken on these loans and the adequacy of the
underlying collateral, there were
no
specific valuation allowances for these loans at December 31, 2022.
In accordance with FASB Topic 825,
Financial Instruments
(“ASC 825”), the carrying amounts and estimated fair values of financial
instruments, at
September
30, 2023 and December 31, 2022 are as follows:
|
(dollars in thousands)
|
Fair Value Measurements at
|
|||||||||||||||||||
|
Carrying
|
September 30
,
2023
Using:
|
|||||||||||||||||||
|
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
|
Financial assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
|
|
|
|
||||||||||||||
|
Securities available for sale
|
|
|
|
|
|
|||||||||||||||
|
Held to maturity securities
|
|
|
|
|
|
|||||||||||||||
|
Federal Home Loan Bank stock
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||||||||
|
Net loans
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Financial liabilities:
|
||||||||||||||||||||
|
Demand deposits
|
|
|
|
|
|
|||||||||||||||
|
Interest bearing deposits
|
|
|
|
|
|
|||||||||||||||
|
Short-term borrowings
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest payable
|
|
|
|
|
|
|||||||||||||||
|
(dollars in thousands)
|
Fair Value Measurements at
|
|||||||||||||||||||
|
Carrying
|
December 31,
2022
Using:
|
|||||||||||||||||||
|
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
|
Financial assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
|
|
|
|
||||||||||||||
|
Securities available for sale
|
|
|
|
|
|
|||||||||||||||
|
Held to maturity securities
|
|
|
|
|
|
|||||||||||||||
|
Federal Reserve Bank and Federal
|
||||||||||||||||||||
|
Home Loan Bank stock
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||||||||
|
Net loans
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Financial liabilities:
|
||||||||||||||||||||
|
Demand deposits
|
|
|
|
|
|
|||||||||||||||
|
Interest bearing deposits
|
|
|
|
|
|
|||||||||||||||
|
Short-term borrowings
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest payable
|
|
|
|
|
|
|||||||||||||||
(7) Accumulated Other Comprehensive Income (Loss)
The following is a summary of the accumulated other comprehensive (loss) income balances, net of tax:
|
|
Three months ended September 30,
2023
|
|||||||||||||||||||
|
|
Amount |
|
||||||||||||||||||
| Other | reclassified | Other | ||||||||||||||||||
| Comprehensive | from Accumulated | Comprehensive loss- | ||||||||||||||||||
| Balance at | loss-Before | Other Comprehensive | Three months ended | Balance at | ||||||||||||||||
|
(dollars in thousands)
|
7/1/2023
|
Reclassifications
|
Income
|
9/30/2023
|
9/30/2023
|
|||||||||||||||
|
|
||||||||||||||||||||
|
Net unrealized holding loss on securities available for sale, net of tax
|
$
|
(
|
)
|
|
(
|
)
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||
|
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax
|
|
|
|
|
|
|||||||||||||||
|
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||
|
Accumulated other comprehensive loss, net of tax
|
$
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||
|
Three months ended
September 30
,
2022
|
||||||||||||||||||||
|
|
Amount |
|
||||||||||||||||||
| Other | reclassified | Other | ||||||||||||||||||
| Comprehensive | from Accumulated | Comprehensive loss- | ||||||||||||||||||
| Balance at | loss-Before | Other Comprehensive | Three months ended | Balance at | ||||||||||||||||
|
(dollars in thousands)
|
7/1/2022
|
Reclassifications
|
Income
|
9/30/2022
|
9/30/2022
|
|||||||||||||||
|
Net unrealized holding gain on securities available for sale, net of tax
|
$
|
(
|
)
|
|
(
|
)
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||
|
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax
|
|
|
|
|
|
|||||||||||||||
|
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||
|
Accumulated other comprehensive loss, net of tax
|
$
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||
|
|
Nine months ended September 30, 2023
|
|||||||||||||||||||
|
|
Amount |
|
||||||||||||||||||
| Other | reclassified | Other | ||||||||||||||||||
| Comprehensive | from Accumulated | Comprehensive loss- | ||||||||||||||||||
| Balance at | loss-Before |
Other Comprehensive
|
Nine months ended | Balance at | ||||||||||||||||
|
(dollars in thousands)
|
1/1/2023
|
Reclassifications
|
Income
|
9/30/2023
|
9/30/2023
|
|||||||||||||||
|
|
||||||||||||||||||||
|
Net unrealized holding loss on securities available for sale, net of tax
|
$
|
(
|
)
|
|
(
|
)
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||
|
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax
|
|
|
|
|
|
|||||||||||||||
|
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||
|
Accumulated other comprehensive loss, net of tax
|
$
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||
|
Nine
months ended
September 30
,
2022
|
||||||||||||||||||||
|
|
Amount |
|
||||||||||||||||||
| Other | reclassified | Other | ||||||||||||||||||
| Comprehensive | from Accumulated | Comprehensive loss- | ||||||||||||||||||
| Balance at | loss-Before | Other Comprehensive | Nine months ended | Balance at | ||||||||||||||||
|
(dollars in thousands)
|
1/1/2022
|
Reclassifications
|
Income
|
9/30/2022
|
9/30/2022
|
|||||||||||||||
|
Net unrealized holding gain on securities available for sale, net of tax
|
$
|
(
|
)
|
|
(
|
)
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||
|
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax
|
|
|
|
|
|
|||||||||||||||
|
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||
|
Accumulated other comprehensive income (loss), net of tax
|
$
|
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
||||||
The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022:
|
(dollars in thousands)
|
Three months ended
|
Nine
months ended
|
|||||||||||||||
|
September 30
,
|
September 30
,
|
||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
Affected Line Item in Financial Statements | |||||||||||||
|
Amortization of pension and postretirement benefit items:
|
|||||||||||||||||
|
Amortization of net actuarial gain
|
$
|
|
|
|
$
|
|
|
|
Salaries and employee benefits
|
||||||||
|
Amortization of prior service credit (cost)
|
(
|
)
|
|
|
(
|
)
|
|
Salaries and employee benefits
|
|||||||||
|
Income tax (benefit) expense
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
Income taxes
|
||||||||
|
Net of tax
|
|
|
|
|
|||||||||||||
|
Total reclassifications, net of tax
|
$
|
|
|
|
$
|
|
|
|
|||||||||
(8) Revenue from Contracts with Customers
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Company’s
sources of non-Interest Income for the three months and nine months ended September 30, 2023 and 2022. Items outside the scope of ASC 606 are noted as such.
|
(dollars in thousands)
|
Three months ended
|
Nine
months ended
|
||||||||||||||
|
September 30
,
|
September 30
,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Non-interest income
|
||||||||||||||||
|
Service Charges on Deposits
|
||||||||||||||||
|
Overdraft fees
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Interchange Income
|
|
|
|
|
||||||||||||
|
Wealth management fees
|
|
|
|
|
||||||||||||
|
Other (a)
|
|
|
|
|
||||||||||||
|
Total non-interest income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| (a) |
|
A description of the Company’s revenue streams accounted in accordance with ASC 606 as follows:
Service charges on Deposit Accounts:
The Company earns fees from its deposit customers for
transaction‑based, account maintenance and overdraft services. Transaction‑based fees, which include services such as stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed, as that is the point
in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.
Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange Income:
Interchange revenue primarily consists of interchange fees, volume‑related
incentives and ATM charges. As the card‑issuing bank, interchange fees represent our portion of discount fees paid by merchants for credit/debit card transactions processed through the interchange network. The levels and structure of interchange
rates are set by the card processing companies and are based on cardholder purchase volumes. The Company earns interchange income as cardholder transactions occur and interchange fees are settled on a daily basis concurrent with the transaction
processing services provided to the cardholder.
Wealth Management fees:
Trustco Financial Services provides a comprehensive suite of trust and
wealth management products and services, including financial and estate planning, trustee and custodial services, investment management, corporate retirement plan recordkeeping and administration of which a fee is charged to manage assets for
investment or transact on accounts. These fees are earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed over the period in which services are performed based on a percentage of the fair
value of assets under management or administration. Other services are based on a fixed fee for certain account types, or based on transaction activity and are recognized when services are rendered. Fees are withdrawn from the customer’s account
balance.
(9) Operating Leases
The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a
lease upon inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s balance sheets.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make
lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate,
therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine present value of operating lease liabilities. Additionally, the Company does allocate the consideration between lease
and non-lease components. The Company’s lease terms may include options to extend when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we
recognize lease expense for these leases on a straight-line basis over the lease term. As of September 30, 2023, the Company did not have any leases with terms of twelve months or less.
As of September
30, 2023
the Company did
no
t have any leases for which any related construction had not yet started. At
September
30, 2023
lease expiration dates ranged from
three months
to
21.0
years and have a weighted average remaining lease term of
8.6
years. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. As mentioned above the leases generally also
include variable lease components which include real estate taxes, insurance, and common area maintenance (“CAM”) charges in the annual rental payments.
Other information related to leases was as follows:
|
(dollars in thousands)
|
Three months ended | |||||||
|
|
September 30
,
|
|||||||
|
2023
|
2022
|
|||||||
|
Operating lease cost
|
$
|
|
|
|||||
|
Variable lease cost
|
|
|
||||||
|
Total Lease costs
|
$
|
|
|
|||||
|
(dollars in thousands)
|
Nine months ended | |||||||
|
|
September 30
,
|
|||||||
|
2023
|
2022
|
|||||||
|
Operating lease cost
|
$
|
|
|
|||||
|
Variable lease cost
|
|
|
||||||
|
Total Lease costs
|
$
|
|
|
|||||
|
(
dollars in thousands)
|
Nine months ended | |||||||
|
|
September 30,
|
|||||||
|
2023
|
2022
|
|||||||
|
Supplemental cash flows information:
|
||||||||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||
|
Operating cash flows from operating leases
|
$
|
|
|
|||||
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
||||||
|
Weighted average remaining lease term
|
|
|
||||||
|
Weighted average discount rate
|
|
%
|
|
%
|
||||
Future minimum lease payments under non-cancellable leases as of September 30, 2023 were as follows:
|
(dollars in thousands)
|
||||
| Year ending | ||||
|
December 31,
|
||||
|
2023
(a)
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Thereafter
|
|
|||
|
Total lease payments
|
$
|
|
||
|
Less: Interest
|
|
|||
|
Present value of lease liabilities
|
$
|
|
||
| (a) |
|
A member of the Board of Directors has an ownership interest in
five
entities that own commercial real estate leased by the Company for use as branch
locations. Total lease payments from the Company to those entities, which are included in the table above, owed at September 30, 2023, were $
2.9
million, which includes interest of $
333
thousand.
(10) Regulatory Capital Requirements
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy regulations and, additionally for
banks, the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. As of September 30, 2023, the Company and the Bank met all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide
five
classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is not classified as
well capitalized, regulatory approval is required to accept brokered deposits. If a bank is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The federal banking
agencies are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution or its holding company. Such actions could have a direct material effect on an institution’s or
its holding company’s financial statements. As of September 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have changed the Bank’s category.
The Bank and the Company reported the following capital ratios as of September 30
, 2023 and December
31, 2022
:
| (Bank Only) |
Minimum for
|
|||||||||||||||
|
|
As of September 30, 2023
|
Well
|
Capital Adequacy plus | |||||||||||||
| Capital Conservation | ||||||||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Capitalized
(1)
|
Buffer
(1)(2)
|
||||||||||||
|
|
||||||||||||||||
|
Tier 1 leverage ratio
|
|
$
|
|
|
%
|
|
%
|
|
%
|
|||||||
|
Common equity tier 1 capital
|
|
|
|
|
||||||||||||
|
Tier 1 risk-based capital
|
|
|
|
|
||||||||||||
|
Total risk-based capital
|
|
|
|
|
||||||||||||
|
|
As of December 31, 2022
|
Well
|
Minimum for
|
|||||||||||||
| Capital Adequacy plus | ||||||||||||||||
| Capital Conservation | ||||||||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Capitalized
(1)
|
Buffer
(1)(2)
|
||||||||||||
|
|
||||||||||||||||
|
Tier 1 leverage ratio
|
|
$
|
|
|
%
|
|
%
|
|
%
|
|||||||
|
Common equity tier 1 capital
|
|
|
|
|
||||||||||||
|
Tier 1 risk-based capital
|
|
|
|
|
||||||||||||
|
Total risk-based capital
|
|
|
|
|
||||||||||||
|
(Consolidated)
|
||||||||||||
|
As of September 30, 2023
|
Minimum for
|
|||||||||||
| Capital Adequacy plus | ||||||||||||
| Capital Conservation | ||||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Buffer
(1)(2)
|
|||||||||
|
|
||||||||||||
|
Tier 1 leverage ratio
|
|
$
|
|
|
%
|
|
%
|
|||||
|
Common equity tier 1 capital
|
|
|
|
|
||||||||
|
Tier 1 risk-based capital
|
|
|
|
|
||||||||
|
Total risk-based capital
|
|
|
|
|
||||||||
|
|
As of December 31, 2022
|
Minimum for
|
||||||||||
| Capital Adequacy plus | ||||||||||||
| Capital Conservation | ||||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Buffer
(1)(2)
|
|||||||||
|
|
||||||||||||
|
Tier 1 leverage ratio
|
|
$
|
|
|
%
|
|
%
|
|||||
|
Common equity Tier 1 capital
|
|
|
|
|||||||||
|
Tier 1 risk-based capital
|
|
|
|
|||||||||
|
Total risk-based capital
|
|
|
|
|||||||||
| (1) |
|
| (2) |
|
(11) New Accounting Pronouncements
Staff Accounting
Bulletin (“SAB”) No. 121
- In March 2022, the SEC issued SAB No. 121. This SAB adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets
held for their platform users. Specifically, this SAB provides interpretive guidance on the accounting and disclosure of obligations to safeguard crypto-assets held for platform users. This guidance was applicable no later than the financial
statement covering the first interim or annual period ending after June 15, 2022. The Company reviewed its business activities as of the date of adoption, June 30, 2022, and determined that SAB 121 is not materially impactful to the financial
statements. Management has continued to monitor it on a quarterly basis and has determined that SAB 121 is not materially impactful to the financial statements as of September 30, 2023.
ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial
Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while
enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments in this ASU require that public business entities disclose
current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses -Measured at Amortized Cost. For entities, like TrustCo, that
have adopted the amendments in ASU 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption was permitted, including adoption in an interim
period. An entity may have elected to adopt the loan modification guidance and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company adopted the ASU on January 1, 2023 using the prospective
approach and the adoption did not have a material impact to the Company, however, disclosures were modified for the new guidance.
|
Crowe LLP
Independent Member Crowe Global
|
Shareholders and the Board of Directors of TrustCo Bank Corp NY
Glenville, New York
Results of Review of Interim Financial Information
We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY (the "Company") as of September 30, 2023, and the related consolidated
statements of income and comprehensive income for the three and nine-month periods ended September 30, 2023 and September 30, 2022 and the related changes in shareholders’ equity and cash flows for the nine-month periods ended September 30,
2023 and September 30, 2022, and the related notes (collectively referred to as the "interim financial information or statements"). Based on our reviews, 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) ("PCAOB"), the consolidated
statement of financial condition of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein);
and in our report dated March 1, 2023, 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, 2022, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the PCAOB. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
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 PCAOB, 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.
| /s/ Crowe LLP | |
| New York, New York |
|
|
November 8, 2023
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51
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
Introduction
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month and nine month periods ended September 30, 2023, with comparisons to the
corresponding period in 2022, 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 2022 Annual Report on Form
10-K, which was filed with the SEC on March 1, 2023, should also 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.
Economic Overview
During the third quarter of 2023, financial markets did not carry the momentum of the first two quarters. For the third quarter of 2023, the S&P 500 Index was down 3.65%, Nasdaq was down 4.12%, and the Dow
Jones Industrial Average was down 2.62% compared to the prior quarter. The 10‑year Treasury bond averaged 4.15% during Q3 2023 compared to 3.60% in Q2 2023, an increase of 55 basis points. The 2‑year Treasury bond average rate increased 66
basis points to 4.92%, which increased the inverted yield curve over the prior quarter. Consequently, the spread between the 10‑year and the 2-year Treasury bonds widened from -0.67% on average in Q2 to -0.77% in Q3. Generally, steeper yield
curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer term rates. Commencing in March 2022, the Federal Open Market Committee (“FOMC”)
increased the target range for the Federal Funds rate seven times in 2022 and four times in 2023 by a total of 525 basis points, to a range of 5.25% to 5.50% as of September 30, 2023. All of these increases were expressly made in response to
inflationary pressures, which are currently expected to continue. Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, continue to be down as
compared to the levels seen before the pandemic. Accordingly, changes in rates and spreads continue to be effected by global economic concerns.
|
|
3 Month
|
2 Year
|
5 Year
|
10 Year
|
10 - 2 Year
|
|||||||||||||||||
|
|
Yield (%)
|
Yield (%)
|
Yield (%)
|
Yield (%)
|
Spread (%)
|
|||||||||||||||||
|
Q3/22
|
Beg of Q3
|
1.72
|
2.92
|
3.01
|
2.98
|
0.06
|
||||||||||||||||
|
Peak
|
3.40
|
4.30
|
4.21
|
3.97
|
0.04
|
|||||||||||||||||
|
Trough
|
1.73
|
2.82
|
2.66
|
2.60
|
-0.51
|
|||||||||||||||||
|
End of Q3
|
3.33
|
4.22
|
4.06
|
3.83
|
-0.39
|
|||||||||||||||||
|
Average in Q3
|
2.75
|
3.38
|
3.23
|
3.10
|
-0.28
|
|||||||||||||||||
|
Q4/22
|
Beg of Q4
|
3.33
|
4.22
|
4.06
|
3.83
|
-0.39
|
||||||||||||||||
|
Peak
|
4.46
|
4.72
|
4.45
|
4.25
|
-0.25
|
|||||||||||||||||
|
Trough
|
3.45
|
4.10
|
3.61
|
3.42
|
-0.84
|
|||||||||||||||||
|
End of Q4
|
4.42
|
4.41
|
3.99
|
3.88
|
-0.53
|
|||||||||||||||||
|
Average in Q4
|
4.19
|
4.39
|
4.00
|
3.83
|
-0.56
|
|||||||||||||||||
|
Q1/23
|
Beg of Q1
|
4.42
|
4.41
|
3.99
|
3.88
|
-0.53
|
||||||||||||||||
|
Peak
|
5.06
|
5.05
|
4.34
|
4.08
|
-0.38
|
|||||||||||||||||
|
Trough
|
4.52
|
3.76
|
3.39
|
3.37
|
-1.07
|
|||||||||||||||||
|
End of Q1
|
4.97
|
4.10
|
3.66
|
3.55
|
-0.55
|
|||||||||||||||||
|
Average in Q1
|
4.78
|
4.35
|
3.80
|
3.65
|
-0.70
|
|||||||||||||||||
|
Q2/23
|
Beg of Q2
|
4.97
|
4.10
|
3.66
|
3.55
|
-0.55
|
||||||||||||||||
|
Peak
|
5.55
|
4.87
|
4.14
|
3.85
|
-0.38
|
|||||||||||||||||
|
Trough
|
4.86
|
3.75
|
3.29
|
3.30
|
-1.06
|
|||||||||||||||||
|
End of Q2
|
5.43
|
4.87
|
4.13
|
3.81
|
-1.06
|
|||||||||||||||||
|
Average in Q2
|
5.27
|
4.26
|
3.69
|
3.60
|
-0.67
|
|||||||||||||||||
|
Q3/23
|
Beg of Q3
|
5.43
|
4.87
|
4.13
|
3.81
|
-1.06
|
||||||||||||||||
|
Peak
|
5.61
|
5.12
|
4.67
|
4.61
|
-0.44
|
|||||||||||||||||
|
Trough
|
5.44
|
4.59
|
3.93
|
3.75
|
-1.08
|
|||||||||||||||||
|
End of Q3
|
5.55
|
5.03
|
4.60
|
4.59
|
-0.44
|
|||||||||||||||||
|
Average in Q3
|
5.54
|
4.92
|
4.31
|
4.15
|
-0.77
|
|||||||||||||||||
The United States economy experienced several areas of concern throughout 2022 continuing into 2023. Economic conditions can vary significantly over geographic areas, with strength concentrated in and around major
population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors.
On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.
Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each placed into receivership. Additionally, following the rapid withdrawal of deposits and large losses reported by Credit Suisse in Switzerland, Swiss Bank UBS
Group AG acquired Credit Suisse in an emergency arrangement brokered by the Swiss government. Lastly, due to the destabilization of First Republic, the FDIC assisted in arranging a sale of First Republic to JPMorgan Chase on May 1, 2023. In
response to the U.S. bank failures in the spring of 2023, the Federal Reserve established a Bank Term Funding Program (“BTFP”) to offer emergency loans of up to one year to eligible depository institutions pledging qualifying assets as
collateral. Nevertheless, the closures of those banks and adverse developments affecting other banks over the course of 2023 have resulted in heightened levels of market activity and volatility. For instance, the share price of a number of
regional banks continues to be adversely affected given continuing concerns regarding the liquidity of these banks and the stability of the banking system in general. The impact of market volatility from the adverse developments in the banking
industry along with continued high inflation and rising interest rates on our business and related financial results, will depend on future developments, which are highly uncertain and difficult to predict. Our businesses and financial results
may be impacted by a variety of other factors as well, such as a government shutdown, a failure by the federal government to raise the federal debt ceiling, or an economic slowdown or recession.
Additionally, in May 2023, the FDIC issued a Notice of Proposed Rulemaking which would implement a special assessment on banks with total assets greater than $5.0 billion to recover the cost associated with
protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. The FDIC has proposed to collect a special assessment at an annual rate of approximately 12.5 basis points over eight quarterly assessment periods,
which it estimates will result in total revenue of $15.8 billion. Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC would retain the ability to cease collection early, extend the
special assessment collection period one or more quarters beyond the initial eight-quarter collection period to collect the difference between actual or estimated losses and the amounts collected, or impose a final shortfall special assessment on
a one-time basis after the receiverships for SVB and Signature Bank terminate. The FDIC is proposing an effective date of January 1, 2024, with special assessments collected beginning with the first quarterly assessment period of 2024 (i.e.,
January 1 through March 31, 2024, with an invoice payment date of June 28, 2024). The special assessment is expected to be recognized, in full, in the reporting period in which the final rule is published.
TrustCo believes that its long-term focus on traditional banking services and practices historically has enabled the Company to avoid significant impact from asset quality problems, and that the Company’s strong
liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice. Management believes that TrustCo has not engaged in the types of high risk loans and investments that
led to the widely reported problems in the industry during the 2007-2009 financial crisis. Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to the historical levels that followed the financial crisis
from time to time.
Should general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of higher interest rates, financial sector instability, a potential or actual
default on the federal debt or other reasons, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.
Financial Overview
TrustCo recorded net income of $14.7 million, or $0.77 of diluted earnings per share, for the three months ended September 30, 2023, compared to net income of $19.4 million, or $1.01 of diluted earnings per share,
in the same period in 2022. Return on average assets was 0.96% and 1.24%, respectively, for the three months ended September 30, 2023 and 2022. Return on average equity was 9.32% and 12.78%, respectively, for the three months ended September
30, 2023 and 2022.
The primary factors accounting for the change in net income for the three months ended September 30, 2023 compared to the same period of the prior year were:
|
|
• |
An increase in interest expense of $14.1 million from interest bearing liabilities, offset by an increase in interest income of $8.5 million from interest earning assets, resulting in a decrease in taxable equivalent net interest
income in the third quarter of 2023 compared to the third quarter of 2022 of $5.6 million.
|
|
|
• |
An increase of $1.3 million in noninterest expense for the third quarter of 2023 compared to the third quarter 2022, primarily as a result of an increase in salaries and employee benefits, equipment expense, professional services,
outsourced services, advertising expense, FDIC and other insurance expense, partially offset by decreases in net occupancy expense and other expenses.
|
TrustCo recorded net income of $48.8 million, or $2.57 of diluted earnings per share, for the nine months ended September 30, 2023, compared to net income of $54.3 million, or $2.84 of diluted earnings per share,
in the same period in 2022. Return on average assets was 1.08% and 1.17%, respectively, for the nine months ended September 30, 2023 and 2022. Return on average equity was 10.57% and 12.16%, respectively, for the nine months ended September 30,
2023 and 2022.
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
markets and the regulatory environment. Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results. Included in the Annual Report on Form 10-K for the year ended December 31, 2022 is a description of the
effect interest rates had on the results for the year 2022 compared to 2021. Many of the same market factors discussed in the 2022 Annual Report, including instability in the financial services sector and heightened global economic concerns,
continued to have a significant impact on results through the third quarter of 2023.
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.
In the experience of management, the absolute level of interest rates, changes in interest 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.
Interest rates have a significant impact on the operations and financial results of all financial services companies. One of the most important interest rates used to control national economic policy is the
“Federal Funds” rate. This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating. Beginning in the second half of 2019, the Federal Reserve Board began lowering the rate
in response to a slowing economy. During the first quarter of 2020, the target range for the Federal Funds rate was significantly decreased to 0.00% to 0.25% as a result of the COVID-19 pandemic. However, as discussed above, the FOMC increased
the target range for the federal funds rate seven times in 2022 and four times in 2023 by a total of 525 basis points, to a range of 5.25% to 5.50% as of September 2023.
The interest rate on the 10-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans. These changes in interest rates have an effect on
the Company relative to the interest income on loans, securities, and Federal Funds sold and other short-term instruments as well as the interest expense on deposits and borrowings. Residential real estate loans and 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 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 are recorded at fair value. Generally, as market
interest rates increase, the fair value of the securities will decrease and the reverse is also generally applicable. Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary
market participants such as Freddie Mac and Fannie Mae. The Company establishes rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive. Higher market
interest rates also generally increase the value of retail deposits.
TrustCo’s principal loan products are residential real estate loans. As noted above, residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates
such as the 10-year Treasury. The 10‑year Treasury yield increased 0.55 basis points, on average, during the third quarter of 2023 compared to the second quarter of 2023 and increased 105 basis points as compared to the third quarter of 2022.
While TrustCo has been affected by changes in financial markets over time, management believes that the impacts have been mitigated by the Company’s generally conservative approach to banking. The Company utilizes
a traditional underwriting process in evaluating loan applications, and since originated loans are retained in the portfolio, there is a strong incentive to be conservative in making credit decisions. For additional information concerning
TrustCo’s loan portfolio and nonperforming 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 significant
level of liquidity on the asset side of the balance sheet. Management believes that these characteristics provide the Company with increased flexibility and stability during periods of market disruption and interest rate volatility.
A fundamental component of TrustCo’s strategy has been to grow customer relationships and the deposits and loans that are part of those relationships. The Company has significant capacity to grow its balance sheet
given its extensive branch network. The Company expects that growth to be profitable. The current interest rate environment, however, has narrowed the margin on incremental balance sheet expansion. While the Company has not changed its
fundamental long term strategy in regard to utilizing its excess capacity, management continually evaluates changing conditions and may seek to limit growth or reduce the size of the balance sheet if its analysis indicates that doing so would be
beneficial.
For the third quarter of 2023, the net interest margin was 2.85%, down 31 basis points versus the prior year’s quarter. The quarterly results reflect the following significant factors:
|
|
• |
The average balance of Federal Funds sold and other short-term investments decreased by $424.3 million while the average yield increased 312 basis points in the third quarter of 2023 compared to the same period in 2022. The increase
in the yield was enough to offset the decrease in the average balance resulting in an increase in interest income of $1.5 million.
|
|
|
• |
The average balance of securities available for sale decreased by $31.0 million and the average yield increased 12 basis points to 2.24%. The increase in the average yield was a result of higher yields on investments purchased during
2022 and 2023.
|
|
|
• |
The average loan portfolio grew by $337.6 million to $4.92 billion and the average yield increased 32 basis points to 3.89% in the third quarter of 2023 compared to the same period in 2022. The average yield increased primarily as a
result of higher rates on loan originations as a result of the current interest rate environment.
|
|
|
• |
The average balance of interest bearing liabilities decreased $77.2 million and the average rate paid increased 122 basis points to 1.33% in the third quarter of 2023 compared to the same period in 2022.
|
During the third quarter of 2023, the Company continued to focus on its strategy to expand the loan portfolio by offering competitive interest rates. Management believes the TrustCo residential real estate loan
product is very competitive compared to local and national competitors. Competition remains strong in the Company’s market areas.
The strategy on the funding side of the balance sheet was to offer competitive shorter term rates which provided the Bank the opportunity to maintain our existing deposits. This strategy management believes should
sustain TrustCo’s strong liquidity position and continue to allow us to cross sell to these new relationships and take advantage of opportunities as they arise.
Earning Assets
Total average interest earning assets decreased from $6.04 billion in the third quarter of 2022 to $5.92 billion in the same period of 2023 with an average yield of 3.88% in the third quarter of 2023 and 3.24% in
the third quarter of 2022. The mix of assets invested in Federal Funds sold and other short-term investments and securities available for sale decreased while loans increased over the prior year period. Interest income on average earning assets
increased from $49.0 million in the third quarter of 2022 to $57.6 million in the third quarter of 2023, on a tax equivalent basis. This increase was primarily driven by the higher interest rates on Federal Funds sold and other short-term
investments and securities available for sale, which resulted from the increases in the Federal Funds target rate throughout 2022 and 2023, and also from interest income on loans due to an increased volume of originations year over year at higher
interest rates.
Loans
The average balance of loans was $4.92 billion in the third quarter of 2023 and $4.59 billion in the comparable period in 2022, and the yield on loans was up 32 basis points to 3.89%. Interest income on loans was
$47.9 million in the third quarter of 2023 up $7.0 million from the same period in 2022. The increase in the yield on loans is a result of the current interest rate environment.
Compared to the third quarter of 2022, the average balance of residential mortgage loans, home equity lines of credit, commercial loans, and installment loans all increased. The average balance of residential
mortgage loans was $4.33 billion in the third quarter of 2023 compared to $4.11 billion in 2022, an increase of 5.3%. The average yield on residential mortgage loans increased by 20 basis points to 3.64% in the third quarter of 2023 compared to
2022.
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 target rate
and rates set by competitors and secondary market participants. TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders. These unique aspects include low closing
costs, fast turn-around time on loan approvals, and no escrow or mortgage insurance requirements for qualified borrowers. Assuming a continued rise in long-term interest rates, the Company would anticipate that the unique features of its loan
products will continue to attract customers in the residential mortgage loan area.
Commercial loans, which consist primarily of loans secured by commercial real estate, increased $53.6 million to an average balance of $261.1 million in the third quarter of 2023 compared to the same period in the
prior year. The average yield on this portfolio was up 42 basis points to 5.21% compared to the prior year period. Company remains selective in underwriting commercial loans seeking a favorable risk/reward balance.
The average yield on home equity credit lines increased 173 basis points to 6.12% during the third quarter of 2023 compared to the year earlier period. The average balances of home equity credit lines increased
22.5% to $320.4 million in the third quarter of 2023 as compared to the prior year.
Securities Available for Sale
The average balance of the securities available for sale portfolio for the third quarter of 2023 was $489.8 million compared to $520.7 million for the comparable period in 2022. The decreasing balance reflects
routine paydowns, calls and maturities, partially offset by new investment purchases. The average yield was 2.24% for the third quarter of 2023 compared to 2.12% for the third quarter of 2022. The increase in average yield is a result of higher
yields on bonds purchased in 2022 and 2023 as a result of the current interest rate environment. This portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises
(such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), Small Business Administration participation certificates, corporate bonds and municipal bonds. These securities are recorded at fair value with any adjustment in fair value
included in other comprehensive income, net of tax.
The net unrealized loss in the available for sale securities portfolio was $49.0 million as of September 30, 2023 compared to a net unrealized loss of $43.5 million as of December 31, 2022. The net unrealized
losses in the portfolio is the result of changes in market interest rate levels.
Held to Maturity Securities
The average balance of held to maturity securities was $6.9 million for the third quarter of 2023 compared to $8.3 million in the third quarter of 2022. The decrease in balances reflects routine paydowns and
calls. No new securities were added to this portfolio during the period. The average yield was 4.22% for the third quarter of 2023 up from 4.08% for the year earlier period. TrustCo expects to hold the securities in this portfolio until they
mature or are called.
The net unrecognized loss in the held to maturity securities portfolio was $280 thousand as of September 30, 2023 compared to a net unrecognized loss of $127 thousand as of December 31, 2022. The decrease in the
net unrecognized losses in the portfolio is the result of changes in market interest rate levels.
As of September 30, 2023, this portfolio consisted solely of agency issued residential mortgage-backed securities and collateralized mortgage obligations. The balances for these securities are recorded at
amortized cost.
Federal Funds Sold and Other Short-term Investments
The average balance of Federal Funds sold and other short‑term investments was $494.6 million for the third quarter of 2023 compared to $918.9 million in the third quarter of 2022. The yield was 5.37% for the
third quarter of 2023 and 2.25% for the comparable period in 2022. Interest income from this portfolio increased $1.5 million from $5.2 million in 2022 to $6.7 million in 2023. While the average balance decreased year over year, the increase in
the Federal Funds target rate throughout 2022 and 2023 resulted in an increase in interest income over the same period in the prior year.
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, money market and time deposit accounts.
Total average interest bearing deposit accounts (which includes interest bearing checking, money market accounts, savings and time deposits) decreased $49.1 million to $4.45 billion for the third quarter of 2023
versus the third quarter in the prior year, and the average rate paid increased from 0.10% for 2022 to 1.34% for 2023. Total interest expense on these deposits increased from $1.1 million to $15.1 million in the third quarter of 2023 compared to
the year earlier period. From the third quarter of 2022 to the third quarter of 2023, interest bearing checking account average balances were down 12.1%, certificates of deposit average balances were up 52.2%, non-interest demand average
balances were down 9.6%, average savings balances decreased 18.8% and money market balances were down 16.1%. While average balances are down from a year ago, we have grown deposits as compared to December 2022, and we continue to encourage
customers to retain these funds in the expanded product offerings of the Bank through aggressive marketing and product differentiation.
At September 30, 2023, the maturity of total time deposits is as follows:
|
(dollars in thousands)
|
||||
|
|
||||
|
Under 1 year
|
$
|
1,465,833
|
||
|
1 to 2 years
|
21,163
|
|||
|
2 to 3 years
|
1,935
|
|||
|
3 to 4 years
|
91,183
|
|||
|
4 to 5 years
|
1,357
|
|||
|
Over 5 years
|
33
|
|||
|
|
$
|
1,581,504
|
||
As of September 30, 2023 and December 31, 2022, approximately $956.7 million and $968.6 million, respectively, of our deposit portfolio were uninsured. The uninsured amounts are estimates based on the methodologies
and assumptions used for the Bank's regulatory reporting requirements.
Average short-term borrowings for the third quarter were $110.0 million in 2023 compared to $138.1 million in 2022. The average rate increased during this time period from 0.35% in 2022 to 0.88% in 2023. The
short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.
The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. The Bank
is a member of the Federal Home Loan Bank of New York (“FHLBNY”) and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”) and has the ability to borrow up to the amount pledged less any collateral reserve utilizing securities
and/or loans. The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a potential contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources,
brokered deposits may be tested from time to time to ensure operational and market readiness.
Net Interest Income
Taxable equivalent net interest income decreased by $5.6 million to $42.2 million in the third quarter of 2023 compared to the same period in 2022. The net interest spread was down 58 basis points to 2.55% in the
third quarter of 2023 compared to the same period in 2022. As previously noted, the net interest margin was also down 31 basis points to 2.85% for the third quarter of 2023 compared to the same period in 2022. The decrease in both the spread and
margin was driven by the increase in deposit costs primarily time deposits outpacing the increase in yield on interest earning assets.
Taxable equivalent net interest income increased by $2.3 million to $133.2 million in the first nine months of 2023 compared to the same period in 2022. The net interest spread was down 8 basis points to 2.78% in
the first nine months of 2023 compared to the same period in 2022. Net interest margin was up 13 basis points to 3.01% for the first nine months of 2023 compared to the same period in 2022.
Nonperforming Assets
Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non‑accrual status 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 included in other assets and categorized as other real estate owned.
The following describes the nonperforming assets of TrustCo as of September 30, 2023:
Nonperforming loans and foreclosed real estate
: Total NPLs and non-accrual loans were $17.9 million at
September 30, 2023, compared to $17.5 million at December 31, 2022 and $18.7 million at September 30, 2022. There were no loans at September 30, 2023 and 2022 and December 31, 2022 that were past due 90 days or more and still accruing
interest. The coverage ratio, or allowance for credit losses on loans to NPLs, was 264.2% at September 30, 2023, compared to 243.6% at September 30, 2022.
At September 30, 2023, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $17.9 million at September 30, 2023, $16.9 million were residential real
estate loans, $854 thousand were commercial loans and mortgages and $158 thousand were installment loans, compared to $16.8 million, $533 thousand and $106 thousand, respectively, at December 31, 2022.
A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net recoveries were $26 thousand on residential real estate
loans (including home equity lines of credit) for the third quarter of 2023 compared to net recoveries of $164 thousand for the third quarter of 2022. Management believes that these loans have been appropriately written down where required.
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 Central Florida, 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
continues to identify delinquent loans as quickly as possible and to move promptly to resolve problem loans. Efforts to resolve delinquencies begin immediately after the payment grace period expires, with repeated, automatically generated
notices, as well as personalized phone calls and letters. Loans are placed in nonaccrual status once they are 90 days past due, or earlier if management has determined that such classification is appropriate. Once in nonaccrual status, loans
are either brought current and maintained current, at which point they may be returned to accrual status, or they proceed through the foreclosure process. The collateral on nonaccrual loans is evaluated periodically, and the loan balance is
written down if the collateral value is insufficient.
The Company originates loans throughout its branch franchise area. At September 30, 2023, 65.4% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New
Jersey, Vermont and Massachusetts), and 34.6% were in Florida. Those figures compare to 68.0% and 32.0%, respectively, at December 31, 2022.
Economic conditions vary widely by geographic location. As a percentage of the total nonperforming loans as of September 30, 2023, 14.6% were to Florida borrowers, compared to 85.4% to borrowers in New York and
surrounding areas. For the three months ended September 30, 2023, New York and surrounding areas experienced net recoveries of approximately $12 thousand and Florida experienced no net recoveries for the third quarter of 2023.
Other than loans currently identified as nonperforming, 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, 2023, 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 loan modifications, as individually evaluated loans. There were $962 thousand of commercial mortgages and commercial
loans classified as individually evaluated as of September 30, 2023 compared to $646 thousand classified as individually evaluated at December 31, 2022. There were $24.5 million of individually evaluated residential loans at September 30, 2023
compared to $25.0 million classified as individually evaluated at December 31, 2022.
As of September 30, 2023 and December 31, 2022, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.
At September 30, 2023 there was $1.2 million of foreclosed real estate compared to $2.1 million at December 31, 2022.
Allowance for credit losses on loans:
The Company adopted CECL on January 1, 2022. Under this standard,
allowances have been established for loans and commitments to lend. The allowance for credit losses on loans (“ACLL”) replaced the previous allowance for loan losses (“ALL”). The Company recorded a net decrease to undivided profits of $3.5
million, net of $1.2 million in deferred tax balances as of January 1, 2022 for the cumulative effect of adopting CECL.
In the third quarter of 2023, the Company recorded a provision for credit losses of $100 thousand, which includes a provision for credit losses on loans of $300 thousand as a result of continued growth in the loan
portfolio partially offset by a sustained low level of NPLs and charge-offs, and a benefit for credit losses on unfunded commitments of $200 thousand as a result of a corresponding decrease in unfunded loan commitments. In the third quarter of
2022, the Company recorded a provision for credit losses of $300 thousand, which includes a provision for credit losses on loans of $100 thousand as a result of continued growth in the loan portfolio partially offset by a sustained low level of
NPLs and charge-offs, and a provision for credit losses on unfunded commitments of $200 thousand as a result of a corresponding increase in unfunded loan commitments.
The Company evaluated several external forecasts in choosing the forecast element for the economic components of the allowance for credit losses on loans. The Company selected the stagflation forecast and there
have been no changes in the economic forecast modeling since CECL adoption on January 1, 2022.
From June 30, 2023 to September 30, 2023 the actual performance was in line with the forecasted performance pertaining to key variables such as consumer price indices, and Gross Metro Product.
See Note 5 of the consolidated interim financial statements for additional discussion related the process for determining the allowance and provision for credit losses.
The allocation of the allowance for credit losses on loans is as follows:
|
(dollars in thousands)
|
|
As of
September 30, 2023
|
As of
December 31, 2022
|
|||||||||||||
|
|
|
Amount
|
|
|
Percent of
Loans to
Total Loans
|
Amount |
Percent of
Loans to
Total Loans
|
|||||||||
|
Commercial
|
|
$ |
2,490
|
|
|
|
4.98
|
%
|
$
|
2,343
|
|
4.41
|
% | |||
|
Real estate - construction
|
|
294
|
|
|
|
0.59
|
%
|
385
|
0.77
|
% | ||||||
|
Real estate mortgage - 1 to 4 family
|
|
39,581
|
|
|
|
87.40
|
% |
38,859
|
88.51
|
% | ||||||
|
Home equity lines of credit
|
|
4,633
|
|
|
|
6.69
|
% |
4,280
|
6.05
|
% | ||||||
|
Installment Loans
|
|
228
|
|
|
|
0.34
|
% |
165
|
0.26
|
% | ||||||
|
|
|
$ |
47,226
|
|
|
|
100.00
|
% |
$
|
46,032
|
|
100.00
|
% | |||
At September 30, 2023, the allowance for loan losses was $47.2 million, compared to $45.5 million at September 30, 2022 and $46.0 million at December 31, 2022. The allowance represents 0.95% of the loan portfolio
as of September 30, 2023, 0.97% at December 31, 2022, and 0.98% at September 30, 2022.
During the third quarter of 2023, there were no commercial loan charge-offs, $27 thousand of residential loan charge-offs, and $23 thousand of consumer loan charge-offs, compared to no commercial loan charge-offs,
$13 thousand of residential loan charge-offs, and $34 thousand of consumer loan charge-offs in the third quarter of 2022. During the third quarter of 2023 there were no commercial loan recoveries, $53 thousand of residential mortgage recoveries,
and $9 thousand for consumer loan recoveries, compared to no commercial loan recoveries, $177 thousand of residential mortgage recoveries, and $2 thousand for consumer loan recoveries in the third quarter of 2022.
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. Management believes that TrustCo’s earnings performance and strong
capital position enable the Company to easily secure new sources of liquidity. 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. As noted, the Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. As
previously stated, the Bank is a member of the FHLBNY and is an eligible borrower at the FRBNY and has the ability to borrow utilizing securities and/or loans as collateral at either institution. The Bank does not utilize brokered deposits as a
part of its funding strategy, but does incorporate them as a contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources, brokered deposits may be tested from time to time to ensure operational
and market readiness. Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months and beyond.
The Company uses an industry standard external model as the primary tool to identify, quantify and project changes in interest rates and prepayment speeds taken both from industry sources and internally generated
data based upon historical trends in the Bank’s balance sheet. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in market interest rates are also incorporated into the model. This model calculates
an economic or fair value amount with respect to non-time deposit categories since these deposits are part of the core deposit products of the Company. The assumptions used are inherently uncertain and, as a result, the model cannot precisely
measure the fair value of capital or precisely predict the impact of fluctuations in interest rates on the fair value of capital.
Using this model, the fair value of capital projections as of September 30, 2023 are referenced below. The base case (current rates) scenario shows the present estimate of the fair value of capital assuming no
change in the operating environment or operating strategies and no change in interest rates from those existing in the marketplace as of September 30, 2023. The following table indicates the impact on the fair value of capital assuming interest
rates were to instantaneously increase by 100 bp, 200 bp, 300 bp and 400 bp or to decrease by 100 bp, 200 bp, 300 bp and 400 bp.
|
Estimated Percentage of
|
||||
|
Fair value of Capital to
|
||||
|
As of September 30, 2023
|
Fair value of Assets
|
|||
|
+400 BP
|
22.10
|
%
|
||
|
+300 BP
|
22.60
|
|||
|
+200 BP
|
24.10
|
|||
|
+100 BP
|
25.60
|
|||
|
Current rates
|
25.90
|
|||
|
-100 BP
|
25.50
|
|||
|
-200 BP
|
23.90
|
|||
|
-300 BP
|
21.40
|
|||
|
-400 BP
|
18.50
|
|||
Noninterest Income
Total noninterest income for the third quarter of 2023 was $4.6 million compared to $4.4 million in the third quarter of 2022. Financial Services income was up $192 thousand to $1.6 million in the third quarter of
2023 as compared to the year-ago period, primarily as a result of higher market values of assets under management. The fair value of assets under management was $902 million at September 30, 2023, $918 million as of December 31, 2022, and $865
million at September 30, 2022. Fees for services to customers were down $115 thousand over the same period in the prior year, primarily as a result of less interchange income.
For the nine months ended September 30, 2023 total noninterest income was $13.8 million, down $644 thousand compared to the prior year period. The decrease is primarily the result of less interchange income, less
Financial Services income and less other income.
Noninterest Expenses
Total noninterest expenses were $27.5 million for the three months ended September 30, 2023, compared to $26.1 million for the three months ended September 30, 2022. Significant changes included a $259 thousand
increase in salaries and employee benefits, a $391 thousand increase in equipment expense, a $342 thousand increase in professional services, a $392 increase in outsourced services, and a $305 thousand increase in FDIC and other insurance,
partially offset by a $125 thousand decrease in net occupancy expense, and a $365 thousand decrease in other expenses. Full time equivalent headcount was 753 as of September 30, 2022, 750 as of December 31, 2022, and 764 as of September 30,
2023. Changes in headcount represent normal fluctuations.
Total noninterest expenses were $82.5 million for the nine months ended September 30, 2023, compared to $73.9 million for the nine-months ended September 30, 2022. Significant changes included an increase of $6.0
million in salaries and employee benefits primarily as a result of a $2 million favorable true-up to the incentive compensation accrual upon payout in the first quarter of 2022, increases in salaries in order to remain competitive, and a decrease
in the benefit from returns on plan assets from the pension and post retirement plan. Other significant changes were an increase in equipment expense of $971 thousand, an increase in professional services of $358 thousand, an increase in
outsourced services of $399 thousand, an increase in FDIC and other insurance of $826 thousand, and an increase in other real estate expense, net, of $327 thousand partially offset by a decrease in other expenses of $222 thousand.
Income Taxes
In the third quarter of 2023, TrustCo recognized income tax expense of $4.6 million compared to $6.4 million for the third quarter of 2022. The effective tax rates were 23.7% and 24.8% for the third quarters of
2023 and 2022, respectively. For the first nine months, income taxes were $15.9 million and $17.6 million in 2023 and 2022, respectively. The effective tax rate was 24.6% and 24.5% for 2023 and 2022, respectively.
Capital Resources
Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios.
Banking regulators have moved towards higher required capital requirements due to the standards included in the “Basel III” banking capital reform measures and the Dodd-Frank Wall Street Reform and Consumer
Protection Act, as well as a general trend towards reducing risk in the banking system by providing a greater capital margin.
Total shareholders’ equity at September 30, 2023 was $623.9 million compared to $589.0 million at September 30, 2022. TrustCo declared a dividend of $0.36 per share in the third quarter of 2023. This results in a
dividend payout ratio of 46.65% based on third quarter 2023 earnings of $14.7 million.
The capital rules, which are generally applicable to both the Company and the Bank, include several measures; specifically, a Tier 1 leverage ratio, a common equity tier 1 (“CET1”) capital ratio, a tier 1
risk-based capital ratio and a total risk-based capital ratio. The rules also impose a capital conservation buffer that requires the Company and the Bank to maintain additional levels of Tier 1 common equity over the minimum risk-based capital
levels before they may pay dividends, repurchase shares or pay discretionary bonuses.
The Bank and the Company reported the following capital ratios as of September 30, 2023 and December 31, 2022:
|
(Bank Only)
|
Minimum for
|
|||||||||||||||
|
|
Capital Adequacy plus
|
|||||||||||||||
|
|
As of September 30, 2023
|
Well
|
Capital Conservation
|
|||||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Capitalized
(1)
|
Buffer
(1)(2)
|
||||||||||||
|
Tier 1 leverage ratio
|
$
|
634,460
|
10.452
|
%
|
5.000
|
%
|
4.000
|
%
|
||||||||
|
Common equity tier 1 capital
|
634,460
|
18.395
|
6.500
|
7.000
|
||||||||||||
|
Tier 1 risk-based capital
|
634,460
|
18.395
|
8.000
|
8.500
|
||||||||||||
|
Total risk-based capital
|
677,649
|
19.647
|
10.000
|
10.500
|
||||||||||||
|
|
Minimum for
|
|||||||||||||||
|
|
Capital Adequacy plus
|
|||||||||||||||
|
|
As of December 31, 2022
|
Well
|
Capital Conservation
|
|||||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Capitalized
(1)
|
Buffer
(1)(2)
|
||||||||||||
|
Tier 1 leverage ratio
|
$
|
609,998
|
10.116
|
%
|
5.000
|
%
|
4.000
|
%
|
||||||||
|
Common equity tier 1 capital
|
609,998
|
18.431
|
6.500
|
7.000
|
||||||||||||
|
Tier 1 risk-based capital
|
609,998
|
18.431
|
8.000
|
8.500
|
||||||||||||
|
Total risk-based capital
|
651,462
|
19.684
|
10.000
|
10.500
|
||||||||||||
|
(Consolidated)
|
||||||||||||
|
Minimum for
|
||||||||||||
|
Capital Adequacy plus
|
||||||||||||
|
As of September 30, 2023
|
Capital Conservation
|
|||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Buffer
(1)(2)
|
|||||||||
|
Tier 1 leverage ratio
|
$
|
654,879
|
10.785
|
%
|
4.000
|
%
|
||||||
|
Common equity tier 1 capital
|
654,879
|
18.982
|
7.000
|
|||||||||
|
Tier 1 risk-based capital
|
654,879
|
18.982
|
8.500
|
|||||||||
|
Total risk-based capital
|
698,079
|
20.234
|
10.500
|
|||||||||
|
Minimum for
|
||||||||||||
|
Capital Adequacy plus
|
||||||||||||
|
As of December 31, 2022
|
Capital Conservation
|
|||||||||||
|
(dollars in thousands)
|
Amount
|
Ratio
|
Buffer
(1)(2)
|
|||||||||
|
Tier 1 leverage ratio
|
$
|
626,628
|
10.390
|
%
|
4.000
|
%
|
||||||
|
Common equity Tier 1 capital
|
626,628
|
18.929
|
7.000
|
|||||||||
|
Tier 1 risk-based capital
|
626,628
|
18.929
|
8.500
|
|||||||||
|
Total risk-based capital
|
668,102
|
20.182
|
10.500
|
|||||||||
(1) Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2) The September 30, 2023 and December 31, 2022 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent
In addition, at September 30, 2023, the consolidated equity to total assets ratio was 10.31%, compared to 10.00% at December 31, 2022 and 9.69% at September 30, 2022.
As of September 30, 2023, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the fully phased-in capital conservation buffer taken into account. Under the Office of the
Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well capitalized” when its CET1, Tier 1, total risk-based and leverage capital ratios are at least 7%, 8.5%, 10.5% and 5%, respectively. A bank
is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements. A bank is “significantly
undercapitalized” if its CET1, Tier 1, total risk-based and leverage capital ratios fall below 3%, 4%, 6% and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or
less than 2%. At September 30, 2023 and 2022, Trustco Bank met the definition of “well-capitalized.”
As noted, the Company’s dividend payout ratio was 46.65% of net income for the third quarter of 2023 and 34.57% of net income for the third quarter of 2022. The per-share dividend paid in the third quarter of 2023
and 2022 was $0.36 and $0.35, respectively. The Company’s ability to pay dividends to its shareholders is dependent upon the ability of the Bank to pay dividends to the Company. The payment of dividends by the Bank to the Company is subject to
continued compliance with minimum regulatory capital requirements. The OCC may disapprove a dividend if the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the
capital distribution would violate a prohibition contained in any statute, regulation or agreement.
TrustCo maintains a dividend reinvestment plan (“DRP”) with approximately 6,771 participants. The DRP allows participants to reinvest dividends in shares of the Company. The DRP also allows for additional purchases
by participants and has a discount feature (up to a 5% for safe harbor provisions) that can be activated by management as a tool to raise capital. To date, the discount feature has not been utilized.
Share Repurchase Program
On March 17, 2023 the Company’s Board of Directors authorized, and the Company announced, another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock.
There were no repurchases during the three and nine months ended September 30, 2023.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, income taxes and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ
from these estimates under different assumptions or conditions.
During the nine months ended September 30, 2023, there were no significant changes to our critical accounting policies and estimates as compared to the critical accounting policies disclosed in our annual report on
Form 10-K for the year ended December 31, 2022. Reference is made to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 13 to our Annual Report on Form 10-K for the year ended
December 31, 2022.
Management considers the accounting policy relating to the allowance for credit losses to be a critical accounting policy given the measurement uncertainty and subjective judgement necessary in evaluating the
levels of the allowance required to cover the life-time losses in the loan portfolio and the material effect that such judgments can have on the results of operations.
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 the 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. Included in the average balance of shareholders' equity is the unrealized loss, net of tax, in the available for sale portfolio of $$33.1 million in 2023 and $25.4 million in 2022. 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 months ended
|
Three months ended
|
|||||||||||||||||||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2023
|
September 30, 2022
|
||||||||||||||||||||||||||||||||||
|
Average
|
Interest
|
Average
|
Average
|
Interest
|
Average
|
Change in
|
Variance
|
Variance
|
||||||||||||||||||||||||||||
|
Balance
|
Rate
|
Balance
|
Rate
|
Interest
|
Balance
|
Rate
|
||||||||||||||||||||||||||||||
|
Income/
|
Change
|
Change
|
||||||||||||||||||||||||||||||||||
|
Assets
|
Expense
|
|||||||||||||||||||||||||||||||||||
|
Securities available for sale:
|
||||||||||||||||||||||||||||||||||||
|
U. S. government sponsored enterprises
|
$
|
119,406
|
$
|
672
|
2.25
|
%
|
$
|
104,633
|
$
|
479
|
1.83
|
%
|
$
|
193
|
$
|
73
|
$
|
120
|
||||||||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations residential
|
269,535
|
1,485
|
2.19
|
%
|
302,886
|
1,617
|
2.13
|
%
|
(132
|
)
|
(408
|
)
|
276
|
|||||||||||||||||||||||
|
State and political subdivisions
|
34
|
-
|
6.74
|
%
|
41
|
1
|
8.12
|
%
|
(1
|
)
|
(1
|
)
|
-
|
|||||||||||||||||||||||
|
Corporate bonds
|
80,331
|
473
|
2.36
|
%
|
86,965
|
526
|
2.42
|
%
|
(53
|
)
|
(40
|
)
|
(13
|
)
|
||||||||||||||||||||||
|
Small Business Administration-guaranteed participation securities
|
19,801
|
107
|
2.15
|
%
|
25,533
|
133
|
2.08
|
%
|
(26
|
)
|
(57
|
)
|
31
|
|||||||||||||||||||||||
|
Other
|
686
|
2
|
1.17
|
%
|
686
|
3
|
1.75
|
%
|
(1
|
)
|
-
|
(1
|
)
|
|||||||||||||||||||||||
|
Total securities available for sale
|
489,793
|
2,739
|
2.24
|
%
|
520,744
|
2,759
|
2.12
|
%
|
(20
|
)
|
(433
|
)
|
413
|
|||||||||||||||||||||||
|
Federal funds sold and other short-term Investments
|
494,597
|
6,688
|
5.37
|
%
|
918,909
|
5,221
|
2.25
|
%
|
1,467
|
(13,966
|
)
|
15,433
|
||||||||||||||||||||||||
|
Held to maturity securities:
|
||||||||||||||||||||||||||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations-residential
|
6,877
|
73
|
4.22
|
%
|
8,306
|
85
|
4.08
|
%
|
(12
|
)
|
(30
|
)
|
18
|
|||||||||||||||||||||||
|
Total held to maturity securities
|
6,877
|
73
|
4.22
|
%
|
8,306
|
85
|
4.08
|
%
|
(12
|
)
|
(30
|
)
|
18
|
|||||||||||||||||||||||
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
6,203
|
131
|
8.45
|
%
|
5,797
|
80
|
5.52
|
%
|
51
|
6
|
45
|
|||||||||||||||||||||||||
|
Commercial loans
|
261,061
|
3,398
|
5.21
|
%
|
207,477
|
2,484
|
4.79
|
%
|
914
|
684
|
230
|
|||||||||||||||||||||||||
|
Residential mortgage loans
|
4,325,219
|
39,321
|
3.64
|
%
|
4,105,859
|
35,342
|
3.44
|
%
|
3,979
|
1,940
|
2,039
|
|||||||||||||||||||||||||
|
Home equity lines of credit
|
320,446
|
4,946
|
6.12
|
%
|
261,575
|
2,896
|
4.39
|
%
|
2,050
|
745
|
1,305
|
|||||||||||||||||||||||||
|
Installment loans
|
15,959
|
256
|
6.37
|
%
|
10,213
|
174
|
6.75
|
%
|
82
|
145
|
(63
|
)
|
||||||||||||||||||||||||
|
Loans, net of unearned income
|
4,922,685
|
47,921
|
3.89
|
%
|
4,585,124
|
40,896
|
3.57
|
%
|
7,025
|
3,514
|
3,511
|
|||||||||||||||||||||||||
|
Total interest earning assets
|
5,920,155
|
57,552
|
3.88
|
%
|
6,038,880
|
49,041
|
3.24
|
%
|
8,511
|
(10,909
|
)
|
19,420
|
||||||||||||||||||||||||
|
Allowance for credit losses on loans
|
(47,077
|
)
|
(45,519
|
)
|
||||||||||||||||||||||||||||||||
|
Cash & non-interest earning assets
|
172,523
|
188,672
|
||||||||||||||||||||||||||||||||||
|
Total assets
|
$
|
6,045,601
|
$
|
6,182,033
|
||||||||||||||||||||||||||||||||
|
Liabilities and shareholders' equity
|
||||||||||||||||||||||||||||||||||||
|
Deposits:
|
||||||||||||||||||||||||||||||||||||
|
Interest bearing checking accounts
|
1,050,313
|
102
|
0.04
|
%
|
$
|
1,195,370
|
$
|
43
|
0.01
|
%
|
59
|
(35
|
)
|
94
|
||||||||||||||||||||||
|
Money market accounts
|
625,031
|
2,384
|
1.51
|
%
|
744,868
|
237
|
0.13
|
%
|
2,147
|
(267
|
)
|
2,414
|
||||||||||||||||||||||||
|
Savings
|
1,282,641
|
639
|
0.20
|
%
|
1,579,513
|
200
|
0.05
|
%
|
439
|
(253
|
)
|
692
|
||||||||||||||||||||||||
|
Time deposits
|
1,494,402
|
11,962
|
3.18
|
%
|
981,704
|
646
|
0.26
|
%
|
11,316
|
505
|
10,811
|
|||||||||||||||||||||||||
|
Total interest bearing deposits
|
4,452,387
|
15,087
|
1.34
|
%
|
4,501,455
|
1,126
|
0.10
|
%
|
13,961
|
(50
|
)
|
14,011
|
||||||||||||||||||||||||
|
Short-term borrowings
|
110,018
|
244
|
0.88
|
%
|
138,105
|
122
|
0.35
|
%
|
122
|
(158
|
)
|
280
|
||||||||||||||||||||||||
|
Total interest bearing liabilities
|
4,562,405
|
15,331
|
1.33
|
%
|
4,639,560
|
1,248
|
0.11
|
%
|
14,083
|
(208
|
)
|
14,291
|
||||||||||||||||||||||||
|
Demand deposits
|
776,885
|
859,122
|
||||||||||||||||||||||||||||||||||
|
Other liabilities
|
81,411
|
82,290
|
||||||||||||||||||||||||||||||||||
|
Shareholders' equity
|
624,900
|
601,061
|
||||||||||||||||||||||||||||||||||
|
Total liabilities and shareholders' equity
|
$
|
6,045,601
|
$
|
6,182,033
|
||||||||||||||||||||||||||||||||
|
Net interest income, tax equivalent
|
42,221
|
47,793
|
$
|
(5,572
|
)
|
$
|
(10,701
|
)
|
$
|
5,129
|
||||||||||||||||||||||||||
|
Net interest spread
|
2.55
|
%
|
3.13
|
%
|
||||||||||||||||||||||||||||||||
|
Net interest margin (net interest income to total interest earning assets)
|
2.85
|
%
|
3.16
|
%
|
||||||||||||||||||||||||||||||||
|
Tax equivalent adjustment
|
-
|
-
|
||||||||||||||||||||||||||||||||||
|
Net interest income
|
$
|
42,221
|
$
|
47,793
|
||||||||||||||||||||||||||||||||
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 the 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. Included in the average balance of shareholders' equity is the unrealized loss, net of tax, in the available for sale portfolio of $30.9 million in 2023 and $17.9 million in 2022. 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 months ended
|
Nine months ended
|
|||||||||||||||||||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2023
|
September 30, 2022
|
||||||||||||||||||||||||||||||||||
|
Average
|
Interest
|
Average
|
Average
|
Interest
|
Average
|
Change in
|
Variance
|
Variance
|
||||||||||||||||||||||||||||
|
Balance
|
Rate
|
Balance
|
Rate
|
Interest
|
Balance
|
Rate
|
||||||||||||||||||||||||||||||
|
Income/
|
Change
|
Change
|
||||||||||||||||||||||||||||||||||
|
Assets
|
Expense
|
|||||||||||||||||||||||||||||||||||
|
Securities available for sale:
|
||||||||||||||||||||||||||||||||||||
|
U. S. government sponsored enterprises
|
$
|
120,243
|
$
|
2,055
|
2.28
|
%
|
$
|
79,423
|
$
|
712
|
1.19
|
%
|
$
|
1,343
|
$
|
483
|
$
|
860
|
||||||||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations-residential
|
278,252
|
4,613
|
2.21
|
%
|
282,423
|
4,071
|
1.92
|
%
|
542
|
(98
|
)
|
640
|
||||||||||||||||||||||||
|
State and political subdivisions
|
34
|
1
|
6.74
|
%
|
41
|
2
|
6.73
|
%
|
(1
|
)
|
(1
|
)
|
-
|
|||||||||||||||||||||||
|
Corporate bonds
|
83,732
|
1,510
|
2.41
|
%
|
75,957
|
1,281
|
2.25
|
%
|
229
|
135
|
94
|
|||||||||||||||||||||||||
|
Small Business Administration-guaranteed participation securities
|
20,876
|
335
|
2.14
|
%
|
27,623
|
427
|
2.06
|
%
|
(92
|
)
|
(118
|
)
|
26
|
|||||||||||||||||||||||
|
Other
|
686
|
7
|
1.02
|
%
|
686
|
7
|
2.04
|
%
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Total securities available for sale
|
503,823
|
8,521
|
1.69
|
%
|
466,153
|
6,500
|
2.79
|
%
|
2,021
|
401
|
1,620
|
|||||||||||||||||||||||||
|
Federal funds sold and other short-term Investments
|
540,570
|
20,213
|
5.00
|
%
|
1,068,217
|
8,046
|
1.01
|
%
|
12,167
|
(8,121
|
)
|
20,288
|
||||||||||||||||||||||||
|
Held to maturity securities:
|
||||||||||||||||||||||||||||||||||||
|
Mortgage backed securities and collateralized mortgage obligations-residential
|
7,205
|
226
|
4.18
|
%
|
8,897
|
262
|
3.93
|
%
|
(36
|
)
|
(60
|
)
|
24
|
|||||||||||||||||||||||
|
Total held to maturity securities
|
7,205
|
226
|
4.18
|
%
|
8,897
|
262
|
3.93
|
%
|
(36
|
)
|
(60
|
)
|
24
|
|||||||||||||||||||||||
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
5,957
|
351
|
5.89
|
%
|
5,734
|
207
|
7.22
|
%
|
144
|
52
|
92
|
|||||||||||||||||||||||||
|
Commercial loans
|
249,738
|
9,716
|
5.19
|
%
|
200,525
|
7,412
|
4.93
|
%
|
2,304
|
1,900
|
404
|
|||||||||||||||||||||||||
|
Residential mortgage loans
|
4,269,494
|
114,227
|
3.57
|
%
|
4,054,657
|
104,310
|
3.43
|
%
|
9,917
|
5,629
|
4,288
|
|||||||||||||||||||||||||
|
Home equity lines of credit
|
305,075
|
13,598
|
5.96
|
%
|
246,026
|
7,289
|
3.96
|
%
|
6,309
|
2,033
|
4,276
|
|||||||||||||||||||||||||
|
Installment loans
|
15,015
|
714
|
6.35
|
%
|
9,507
|
492
|
6.91
|
%
|
222
|
288
|
(66
|
)
|
||||||||||||||||||||||||
|
Loans, net of unearned income
|
4,839,322
|
138,255
|
3.81
|
%
|
4,510,715
|
119,503
|
3.53
|
%
|
18,752
|
9,850
|
8,902
|
|||||||||||||||||||||||||
|
Total interest earning assets
|
5,896,877
|
167,566
|
3.79
|
%
|
6,059,716
|
134,518
|
2.96
|
%
|
33,048
|
2,122
|
30,926
|
|||||||||||||||||||||||||
|
Allowance for credit losses on loans
|
(46,812
|
)
|
(46,225
|
)
|
||||||||||||||||||||||||||||||||
|
Cash & non-interest earning assets
|
173,523
|
196,333
|
||||||||||||||||||||||||||||||||||
|
Total assets
|
$
|
6,023,588
|
$
|
6,209,824
|
||||||||||||||||||||||||||||||||
|
Liabilities and shareholders' equity
|
||||||||||||||||||||||||||||||||||||
|
Deposits:
|
||||||||||||||||||||||||||||||||||||
|
Interest bearing checking accounts
|
$
|
1,088,859
|
217
|
0.03
|
%
|
$
|
1,199,154
|
129
|
0.01
|
%
|
88
|
(16
|
)
|
104
|
||||||||||||||||||||||
|
Money market accounts
|
613,119
|
4,954
|
1.08
|
%
|
771,301
|
661
|
0.11
|
%
|
4,293
|
(243
|
)
|
4,536
|
||||||||||||||||||||||||
|
Savings
|
1,363,052
|
1,824
|
0.18
|
%
|
1,557,503
|
519
|
0.04
|
%
|
1,305
|
(105
|
)
|
1,410
|
||||||||||||||||||||||||
|
Time deposits
|
1,343,762
|
26,525
|
2.64
|
%
|
971,539
|
1,728
|
0.24
|
%
|
24,797
|
915
|
23,882
|
|||||||||||||||||||||||||
|
Total interest bearing deposits
|
4,408,792
|
33,520
|
1.02
|
%
|
4,499,497
|
3,037
|
0.09
|
%
|
30,483
|
551
|
29,932
|
|||||||||||||||||||||||||
|
Short-term borrowings
|
121,911
|
808
|
0.89
|
%
|
194,228
|
532
|
0.37
|
%
|
276
|
(364
|
)
|
640
|
||||||||||||||||||||||||
|
Total interest bearing liabilities
|
4,530,703
|
34,328
|
1.01
|
%
|
4,693,725
|
3,569
|
0.10
|
%
|
30,759
|
187
|
30,572
|
|||||||||||||||||||||||||
|
Demand deposits
|
793,890
|
836,953
|
||||||||||||||||||||||||||||||||||
|
Other liabilities
|
81,771
|
81,780
|
||||||||||||||||||||||||||||||||||
|
Shareholders' equity
|
617,224
|
597,366
|
||||||||||||||||||||||||||||||||||
|
Total liabilities and shareholders' equity
|
$
|
6,023,588
|
$
|
6,209,824
|
||||||||||||||||||||||||||||||||
|
Net interest income , tax equivalent
|
133,238
|
130,949
|
$
|
2,289
|
$
|
1,935
|
$
|
354
|
||||||||||||||||||||||||||||
|
Net interest spread
|
2.78
|
%
|
2.86
|
%
|
||||||||||||||||||||||||||||||||
|
Net interest margin (net interest income to total interest earning assets)
|
3.01
|
%
|
2.88
|
%
|
||||||||||||||||||||||||||||||||
|
Tax equivalent adjustment
|
-
|
-
|
||||||||||||||||||||||||||||||||||
|
Net interest income
|
$
|
133,238
|
$
|
130,949
|
||||||||||||||||||||||||||||||||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk
|
The information presented in the "Liquidity and Interest Rate Sensitivity" section of Part I, Item 2 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
As detailed in the Annual Report to Shareholders as of December 31, 2022, the Company is subject to interest rate risk as its principal market risk. As noted in the Management’s Discussion and Analysis for the
three-month and nine-month month periods ended September 30, 2023 and 2022, the Company continues to respond to changes in interest rates in such a way that positions the Company to meet short term earning goals and also allows the Company to
respond to changes in interest rates in the future. Consequently, for the third quarter of 2023, the Company had an average balance of Federal Funds sold and other short-term investments of $494.6 million compared to $918.9 million in the third
quarter of 2022. As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short-term investment portfolio into the securities available for sale, securities held to maturity and loan
portfolios. TrustCo does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as “derivatives.” Additional disclosure of interest rate risk can be found under
“Liquidity and Interest Rate Sensitivity” and “Asset/Liability Management” in the Management’s Discussion and Analysis section of this document.
| Item 4. |
Controls and Procedures
|
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the 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. 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. Based upon this evaluation of those disclosure controls and procedures, the Chief Executive Officer 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 Company’s 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.
Changes in Internal Control over Financial Reporting
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 Company’s internal control over financial reporting.
| PART II |
OTHER INFORMATION
|
| Item 1. |
Legal Proceedings
|
The nature of TrustCo’s business generates a certain amount of litigation against TrustCo and its subsidiaries involving matters arising in the ordinary course of business. In the opinion of management of TrustCo,
there are no proceedings pending to which TrustCo or any of its subsidiaries is a party, or of which its property is the subject which, if determined adversely to TrustCo or such subsidiaries, would be material in relation to TrustCo’s
consolidated shareholders’ equity and financial condition.
| Item 1A. |
Risk Factors
|
An investment in the Company involves risks, including the risks discussed in Item 1A. “Risk Factors” of the Company’s 2022 Form 10-K, which risk factors have not materially changed except as set forth below. The
risk factors below supersede the similarly captioned risk factors set forth in the 2022 Form 10-K and supplement the other risk factors in the 2022 Form 10-K. The risk factors below reflect modifications to the nature of the risks that have
developed since the date on which the 2022 Form 10-K was filed.
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition.
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition. The
macroeconomic environment in the United States is susceptible to global events and volatility in financial markets. The stock and credit markets have been experiencing significant variations in volatility levels in recent years. 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. Current volatility levels have diminished significantly from the peak, but a
return to higher levels could cause the Company to experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition, and results of operations.
Additionally, ongoing military conflicts (such as the conflicts in Ukraine and in Israel and its surrounding areas) has lead, and could continue to lead, to significant market and other disruptions, including
significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in
cyberattacks and espionage. In addition, global demand for products continues to exceed supply during the economic recovery from the COVID-19 pandemic, creating inflationary pressures which, in turn, may adversely impact consumer and business
confidence, and adversely affect the economy as well as our financial condition and results. Furthermore, trade negotiations between the U.S. and other nations remain uncertain and could adversely impact economic and market conditions for the
Company, our customers, and counterparties.
Actions taken by the Federal Reserve Board, including changes in its target funds rate, balance sheet management and lending facilities are beyond our control and difficult to predict. These actions can affect
interest rates and the value of financial instruments and other assets and liabilities and can impact our borrowers. Sudden changes in monetary policy, for example, in response to high inflation, have led and may in the future lead to financial
market volatility, increases in market interest rates and a continued flattening or inversion of the yield curve. Higher inflation, or volatility and uncertainty related to inflation, could reduce demand for our products, adversely affect the
creditworthiness of our borrowers or result in lower values for our investment securities and other interest-earning assets.
Any downgrade in the credit rating of the U.S. government or default by the U.S. government as a result of political conflicts over legislation to raise the U.S. government’s debt limit may have a material adverse
effect on us.
Recent federal budget deficit concerns and political conflict over legislation to raise the U.S. government’s debt limit have increased the possibility of a default by the U.S. government on its debt obligations,
related credit-rating downgrades, or an economic recession in the United States. Many of our investment securities are issued by the U.S. government, including certain government agencies and sponsored entities. As a result of uncertain domestic
political conditions, including the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or
guaranteed by the federal government may pose liquidity risks. In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, Standard & Poor’s lowered its long-term
sovereign credit rating on the U.S. from AAA to AA+. On August 1, 2023, Fitch Ratings also downgraded its U.S. long-term sovereign credit rating from AAA to AA+. A downgrade, or a similar action by other rating agencies, in response to current
political dynamics, as well as sovereign debt issues facing the governments of other countries, could generally have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide and, therefore, materially
adversely affect our business, financial condition and results of operations.
The soundness of other financial institutions could adversely affect us.
Recent events relating to the failures of certain banking entities in March and April 2023, including Silicon Valley Bank, Signature Bank, Silvergate Capital Corp., First Republic Bank, and Credit Suisse, has
caused general uncertainty and concern regarding the liquidity adequacy of the banking sector as a whole. 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. In addition, in May 2023, the FDIC issued a Notice of Proposed Rulemaking which
would implement a special assessment on banks with total assets greater than $5.0 billion to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. We anticipate
increased regulatory scrutiny and new regulations directed towards regional banks similar in size to us, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and
reduce our profitability.
Any government shutdown could adversely affect the U.S. and global economy and our liquidity, financial condition and earnings.
Disagreement over the federal budget has previously caused the U.S. federal government to shut down for periods of time. An extended period of shutdown of portions of the U.S. federal government could negatively
impact the financial performance of certain customers and could negatively impact customers’ future access to certain loan and guaranty programs. Continued adverse political and economic conditions could have a material adverse effect on our
business, financial condition and results of operations.
Changes in interest rates, including recent and possible future increases fueled by inflation, may significantly impact our financial condition and results of operations
Like other financial institutions, we are subject to interest rate risk. Our primary source of income is net interest income, which is the difference between interest earned on loans and investments, and interest
paid on deposits and borrowings. The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such
assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy,
competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the FRB (the “FOMC”), and market interest rates.
Over any specific period of time, our interest-earning assets may be more sensitive to changes in market interest rates than our interest-bearing liabilities, or vice-versa. In addition, the individual market
interest rates underlying our loan and deposit products may not change to the same degree over a given time period. In any event, if market interest rates should move contrary to our position, earnings may be negatively affected. Commencing in
March 2022, the FOMC increased the target range for the Federal Funds rate seven times in 2022 and four times in 2023 by a total of 525 basis points, to a range of 5.25% to 5.50% as of September 30, 2023. All of these increases were expressly
made in response to inflationary pressures, which are currently expected to continue. In its September and October 2023 “Beige Books”, the FRB noted that overall economic growth was modest during July and August and that there has been little to
no change in overall economic activity since then. Regional banks continued to report ongoing declines in loan demand, tighter credit conditions, and narrowing loan spreads. Furthermore, while most banks reported higher deposit rates, delinquency
rates edged up. In addition, inflationary pressures moderated somewhat but remained widespread while conditions in the broad finance sector weakened slightly during the last reporting period.
There can be no assurances as to any future FOMC conduct. If the FOMC further increases the targeted Federal Funds rates, overall interest rates likely will rise, which will positively impact our interest income
but may further negatively impact the entire national economy, including the housing industry in the markets we serve, by reducing refinancing activity and new home purchases. In addition, deflationary pressures, while possibly lowering our
operational costs, could have a significant negative effect on our borrowers and the values of collateral securing loans, which could negatively affect our financial performance. A significant portion of our loans have fixed interest rates (or,
if adjustable, are initially fixed for periods of five to 10 years) and longer terms than our deposits and borrowings. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than
the rates we earn on loans.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Increases in interest rates may
decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans. Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to
reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable
to the interest rates on existing loans and securities. Conversely, increases in interest rates often result in slowed prepayments of loans and mortgage-related securities, reducing cash flows and reinvestment opportunities.
Changes in interest rates also affect the value of the Bank’s interest-earning assets, and in particular the Bank’s securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely with
changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest
rates could have an adverse effect on shareholders’ equity.
Inflationary pressures and rising prices may affect our results of operations and financial condition.
Inflation rose sharply at the end of 2021 and has remained at an elevated level through 2022 and 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to
leverage economics of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would
adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial
condition.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
Share Repurchase Program
The following table provides certain information with respect to the Company’s purchases of its common shares during the three months ended September 30, 2023:
|
Period
|
Total
numbers of
shares
purchased
|
Average price
paid per share |
Total number of shares
purchased as part of
publicly announced plans
or programs
|
Maximum number of
shares that may yet be
purchased under the
plans or programs (1)
|
||||||||||||
|
July 1, 2023 through July 31, 2023
|
-
|
$
|
-
|
-
|
200,000
|
|||||||||||
|
August 1, 2023 through August 31, 2023
|
-
|
-
|
-
|
200,000
|
||||||||||||
|
September 1, 2023 through September 30, 2023
|
-
|
-
|
-
|
200,000
|
||||||||||||
|
Total
|
-
|
$
|
-
|
-
|
200,000
|
|||||||||||
|
|
(1) |
On March 17, 2023 the Company’s Board of Directors authorized, and the Company announced, another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock. There were no
repurchases during the three months ended September 30, 2023.
|
| Item 3. |
Defaults Upon Senior Securities
|
None.
| Item 4. |
Mine Safety Disclosures
|
None.
| Item 5. |
Other Information
|
| (a) |
None.
|
|
|
(b) |
None.
|
|
|
(c) |
During the period covered by this report, none of the Company’s directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation
S-K under the Securities Exchange Act of 1934, as amended).
|
| Item 6. |
Exhibits
|
Reg S-K (Item 601)
|
Exhibit No.
|
Description
|
|
Amended and Restated Certificate of Incorporation of TrustCo Bank Corp NY, as amended, incorporated by reference to Exhibit 3.1 to TrustCo Bank Corp NY’s Quarterly Report on Form 10-Q,
filed August 5, 2021.
|
|
|
Amended and Restated Bylaws of TrustCo Bank Corp NY, effective October 17, 2023, incorporated by reference to Exhibit 3.1 to TrustCo Bank Corp NY’s Current Report on Form 8-K, filed
October 17, 2023.
|
|
|
Crowe LLP Letter Regarding Unaudited Interim Financial Information
|
|
|
Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer.
|
|
|
Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer.
|
|
|
Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer.
|
|
|
101
|
Sections of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language), submitted in the following files:
|
|
101.INS
|
Inline XBRL Instance Document
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
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
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
|
|
|
By:
/s/
Michael M. Ozimek
|
|
|
|
Michael M. Ozimek
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
Date: November 8, 2023
|
|
|
78
TABLE OF CONTENTS
Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits