TrustBank NY(TRST) - 2024 Q2 - Quarterly Report

Form 10-Q Cover Page Identifies the registrant, filing period, accelerated filer status, and common stock outstanding - Registrant: TRUSTCO BANK CORP NY, filing Form 10-Q for the quarterly period ended June 30, 2024[1] - The registrant is an accelerated filer and not a shell company[1] - Common Stock outstanding as of July 31, 2024: 19,010,433 shares[2] Forward-Looking Statements Outlines potential future risks and uncertainties that could impact the company's financial performance and operations Risks Related to Our Operations Operational risks include impacts from interest rate changes, inflationary pressures, credit risk in lending, and management dependencies - Changes in interest rates have impacted and may continue to impact our financial condition and results of operations[6] - Ongoing inflationary pressures and continued elevated prices have affected and may continue to affect our results of operations and financial condition[6] - Exposure to credit risk in lending activities, particularly the increasing commercial loan portfolio, may lead to additional provisions for credit losses or charge-offs, negatively impacting earnings and capital[6] Risks Related to Market Conditions Market risks encompass adverse effects from economic downturns, global instability, and financial institution soundness - A prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our operations and financial results[7] - 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[7] Risks Related to Compliance and Regulation Compliance risks involve regulatory capital rules, increased costs from law changes, and potential fines for non-compliance - Regulatory capital rules could slow our growth, cause us to seek to raise additional capital, or both[8] - Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income[8] Risks Related to Competition Competitive risks include strong market competition and increasing use of non-bank financial services - Strong competition within the Bank's market areas could hurt profits and slow growth[9] - Consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations[9] Risks Related to Cybersecurity, Third Parties, and Technology Cybersecurity risks involve third-party service providers, data breaches, and operational system failures - Our business could be adversely affected by third-party service providers, data breaches, and cyber-attacks[9] - 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[9] Risks Related to Ownership of Our Securities Securities ownership risks include takeover deterrence and uncertainty of capital allocation enhancing stockholder value - Provisions in our articles of incorporation and bylaws and New York law may discourage or prevent takeover attempts, potentially reducing the market price of our stock[10] Part I. FINANCIAL INFORMATION Presents the unaudited consolidated interim financial statements and management's discussion and analysis Consolidated Interim Financial Statements (Unaudited) Provides unaudited consolidated financial statements including income, comprehensive income, financial condition, equity, and cash flows, with accompanying notes Consolidated Statements of Income Presents the unaudited consolidated statements of income for the three and six months ended June 30, 2024 and 2023 Consolidated Statements of Income (Unaudited) - Three Months Ended June 30 | Metric | 2024 (thousands) | 2023 (thousands) | Change (YoY) (thousands) | |:---|:---|:---|:---| | Total Interest Income | $60,585 | $56,082 | +$4,503 | | Total Interest Expense | $22,797 | $12,030 | +$10,767 | | Net Interest Income | $37,788 | $44,052 | -$6,264 | | Provision (Credit) for Credit Losses | $500 | ($500) | +$1,000 | | Net Interest Income after Provision (Credit) for Credit Losses | $37,288 | $44,552 | -$7,264 | | Total Noninterest Income | $5,651 | $4,598 | +$1,053 | | Total Noninterest Expenses | $26,459 | $27,327 | -$868 | | Income Before Taxes | $16,480 | $21,823 | -$5,343 | | Income Taxes | $3,929 | $5,451 | -$1,522 | | Net Income | $12,551 | $16,372 | -$3,821 | | Basic EPS | $0.66 | $0.86 | -$0.20 | | Diluted EPS | $0.66 | $0.86 | -$0.20 | Consolidated Statements of Income (Unaudited) - Six Months Ended June 30 | Metric | 2024 (thousands) | 2023 (thousands) | Change (YoY) (thousands) | |:---|:---|:---|:---| | Total Interest Income | $120,338 | $110,014 | +$10,324 | | Total Interest Expense | $45,972 | $18,997 | +$26,975 | | Net Interest Income | $74,366 | $91,017 | -$16,651 | | Provision (Credit) for Credit Losses | $1,100 | ($200) | +$1,300 | | Net Interest Income after Provision (Credit) for Credit Losses | $73,266 | $91,217 | -$17,951 | | Total Noninterest Income | $10,494 | $9,267 | +$1,227 | | Total Noninterest Expenses | $51,362 | $55,006 | -$3,644 | | Income Before Taxes | $32,398 | $45,478 | -$13,080 | | Income Taxes | $7,721 | $11,360 | -$3,639 | | Net Income | $24,677 | $34,118 | -$9,441 | | Basic EPS | $1.30 | $1.79 | -$0.49 | | Diluted EPS | $1.30 | $1.79 | -$0.49 | Consolidated Statements of Comprehensive Income Details the unaudited consolidated statements of comprehensive income for the three and six months ended June 30, 2024 and 2023 Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended June 30 | Metric | 2024 (thousands) | 2023 (thousands) | Change (YoY) (thousands) | |:---|:---|:---|:---| | Net Income | $12,551 | $16,372 | -$3,821 | | Net unrealized holding gain (loss) on securities available for sale, net of tax | $642 | ($2,755) | +$3,397 | | Amortization of net actuarial gain and prior service cost on pension and postretirement plans, net of tax | ($147) | ($82) | -$65 | | Other comprehensive income (loss), net of tax | $495 | ($2,837) | +$3,332 | | Comprehensive Income | $13,046 | $13,535 | -$489 | Consolidated Statements of Comprehensive Income (Unaudited) - Six Months Ended June 30 | Metric | 2024 (thousands) | 2023 (thousands) | Change (YoY) (thousands) | |:---|:---|:---|:---| | Net Income | $24,677 | $34,118 | -$9,441 | | Net unrealized holding gain (loss) on securities available for sale, net of tax | ($736) | $1,146 | -$1,882 | | Amortization of net actuarial gain and prior service cost on pension and postretirement plans, net of tax | ($295) | ($164) | -$131 | | Other comprehensive income (loss), net of tax | ($1,031) | $982 | -$2,013 | | Comprehensive Income | $23,646 | $35,100 | -$11,454 | Consolidated Statements of Financial Condition Outlines the unaudited consolidated financial condition as of June 30, 2024 and December 31, 2023 Consolidated Statements of Financial Condition (Unaudited) - As of June 30, 2024 and December 31, 2023 | Metric (thousands) | June 30, 2024 | December 31, 2023 | Change (thousands) | |:---|:---|:---|:---| | ASSETS: | | | | | Total cash and cash equivalents | $536,113 | $578,004 | -$41,891 | | Securities available for sale | $395,177 | $452,289 | -$57,112 | | Held to maturity securities | $5,921 | $6,458 | -$537 | | Net loans | $4,988,540 | $4,954,301 | +$34,239 | | Total assets | $6,106,644 | $6,168,191 | -$61,547 | | LIABILITIES: | | | | | Total deposits | $5,276,967 | $5,350,777 | -$73,810 | | Short-term borrowings | $89,720 | $88,990 | +$730 | | Total liabilities | $5,451,476 | $5,522,906 | -$71,430 | | SHAREHOLDERS' EQUITY: | | | | | Total shareholders' equity | $655,168 | $645,285 | +$9,883 | | Total liabilities and shareholders' equity | $6,106,644 | $6,168,191 | -$61,547 | Consolidated Statements of Changes in Shareholders' Equity Reports the unaudited consolidated changes in shareholders' equity for the six months ended June 30, 2024 Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - Six Months Ended June 30, 2024 | Metric (thousands) | Capital Stock | Surplus | Undivided Profits | Accumulated Other Comprehensive Loss | Treasury Stock | Total | |:---|:---|:---|:---|:---|:---|:---| | Beginning balance, January 1, 2024 | $20,058 | $257,181 | $425,069 | ($13,237) | ($43,786) | $645,285 | | Net income | - | - | $24,677 | - | - | $24,677 | | Other comprehensive income (loss), net of tax | - | - | - | ($1,031) | - | ($1,031) | | Stock Based Compensation Expense | - | $309 | - | - | - | $309 | | Cash dividend declared, $0.36 per share | - | - | ($13,697) | - | - | ($13,697) | | Purchase of treasury stock | - | - | - | - | ($374) | ($374) | | Ending balance, June 30, 2024 | $20,058 | $257,490 | $436,048 | ($14,268) | ($44,160) | $655,168 | Consolidated Statements of Cash Flows Provides the unaudited consolidated statements of cash flows for the six months ended June 30, 2024 and 2023 Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30 | Metric (thousands) | 2024 | 2023 | Change (thousands) | |:---|:---|:---|:---| | Net cash provided by operating activities | $28,615 | $34,447 | -$5,832 | | Net cash provided by (used in) investing activities | $16,645 | ($124,726) | +$141,371 | | Net cash (used in) provided by financing activities | ($87,151) | $43,037 | -$130,188 | | Net decrease in cash and cash equivalents | ($41,891) | ($47,242) | +$5,351 | | Cash and cash equivalents at end of period | $536,113 | $603,357 | -$67,244 | Notes to Consolidated Interim Financial Statements Provides detailed explanations and disclosures supporting the unaudited consolidated interim financial statements (1) Financial Statement Presentation Clarifies the basis of presentation for unaudited interim financial statements and liquidity considerations - The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY include the accounts of the Company's subsidiary, Trustco Bank and other subsidiaries after elimination of all significant intercompany accounts and transactions[21] - The net income reported for the three and six months ended June 30, 2024 is not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any interim periods[21] - The Company believes that it has sufficient liquid assets and borrowing sources should there be a liquidity need[23] (2) Earnings Per Share Details the calculation of basic and diluted earnings per share for the reported periods Earnings Per Share (Unaudited) - Three and Six Months Ended June 30 | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net Income (thousands) | $12,551 | $16,372 | $24,677 | $34,118 | | Weighted average common shares (thousands) | 19,022 | 19,024 | 19,023 | 19,024 | | Basic EPS | $0.66 | $0.86 | $1.30 | $1.79 | | Diluted EPS | $0.66 | $0.86 | $1.30 | $1.79 | - For the three and six months ended June 30, 2024 there were 48 thousand weighted average anti-dilutive stock options excluded from dilutive earnings[24] (3) Benefit Plans Outlines the components of net periodic benefit recognized for pension and postretirement plans Net Periodic Benefit (Unaudited) - Three Months Ended June 30 | Metric (thousands) | Pension Benefits 2024 | Pension Benefits 2023 | Other Postretirement Benefits 2024 | Other Postretirement Benefits 2023 | |:---|:---|:---|:---|:---|\ | Service cost | - | - | $4 | $3 | | Interest cost | $289 | $304 | $72 | $66 | | Expected return on plan assets | ($762) | ($661) | ($332) | ($290) | | Amortization of net gain | ($19) | - | ($183) | ($114) | | Amortization of prior service cost | - | - | $3 | $3 | | Net periodic benefit | ($492) | ($357) | ($436) | ($332) | Net Periodic Benefit (Unaudited) - Six Months Ended June 30 | Metric (thousands) | Pension Benefits 2024 | Pension Benefits 2023 | Other Postretirement Benefits 2024 | Other Postretirement Benefits 2023 | |:---|:---|:---|:---|:---|\ | Service cost | - | - | $9 | $5 | | Interest cost | $578 | $606 | $144 | $132 | | Expected return on plan assets | ($1,524) | ($1,341) | ($663) | ($579) | | Amortization of net gain | ($38) | - | ($367) | ($228) | | Amortization of prior service cost | - | - | $6 | $6 | | Net periodic benefit | ($984) | ($735) | ($871) | ($664) | - The Company does not expect to contribute to its pension and postretirement benefit plans in 2024[26] (4) Investment Securities Details the company's investment securities, including available-for-sale, held-to-maturity, and equity securities (a) Securities available for sale Presents the amortized cost, unrealized gains/losses, and fair value of available-for-sale securities Securities Available for Sale (Unaudited) - As of June 30, 2024 | Type (thousands) | Amortized Cost (thousands) | Gross Unrealized Gains (thousands) | Gross Unrealized Losses (thousands) | Fair Value (thousands) | |:---|:---|:---|:---|:---| | U.S. government sponsored enterprises | $109,281 | - | $2,485 | $106,796 | | State and political subdivisions | $26 | - | - | $26 | | Mortgage backed securities and collateralized mortgage obligations - residential | $246,142 | $128 | $27,959 | $218,311 | | Corporate bonds | $55,054 | - | $1,290 | $53,764 | | Small Business Administration - guaranteed participation securities | $17,222 | - | $1,630 | $15,592 | | Other | $688 | $8 | $8 | $688 | | Total Securities Available for Sale | $428,413 | $136 | $33,372 | $395,177 | Securities Available for Sale (Unaudited) - As of December 31, 2023 | Type (thousands) | Amortized Cost (thousands) | Gross Unrealized Gains (thousands) | Gross Unrealized Losses (thousands) | Fair Value (thousands) | |:---|:---|:---|:---|:---| | U.S. government sponsored enterprises | $121,728 | $5 | $3,065 | $118,668 | | State and political subdivisions | $26 | - | - | $26 | | Mortgage backed securities and collateralized mortgage obligations - residential | $263,182 | $270 | $25,775 | $237,677 | | Corporate bonds | $80,150 | - | $2,098 | $78,052 | | Small Business Administration - guaranteed participation securities | $18,740 | - | $1,554 | $17,186 | | Other | $687 | $11 | $18 | $680 | | Total Securities Available for Sale | $484,513 | $286 | $32,510 | $452,289 | - Proceeds from calls/paydowns of securities available for sale were $11,653 thousand for the three months ended June 30, 2024, and $20,494 thousand for the six months ended June 30, 2024[31] (b) Held to maturity securities Details the amortized cost, fair value, and unrecognized gains/losses for held-to-maturity securities Held to Maturity Securities (Unaudited) - As of June 30, 2024 and December 31, 2023 | Metric (thousands) | June 30, 2024 Amortized Cost (thousands) | June 30, 2024 Fair Value (thousands) | Dec 31, 2023 Amortized Cost (thousands) | Dec 31, 2023 Fair Value (thousands) | |:---|:---|:---|:---|:---| | Mortgage backed securities and collateralized mortgage obligations - residential | $5,921 | $5,819 | $6,458 | $6,396 | | Gross Unrecognized Gains (June 30, 2024) | $38 | | $74 (Dec 31, 2023) | | | Gross Unrecognized Losses (June 30, 2024) | $140 | | $136 (Dec 31, 2023) | | - There were no sales or transfers of held to maturity securities during the three and six months ended June 30, 2024 and 2023[35] - There were no allowance for credit losses recorded for held to maturity securities during the three and six months ended June 30, 2024[36] (c) Equity Securities Describes the accounting for equity securities, including the Visa Class C common stock gain - During Q2 2024, Visa Inc. accepted the Company's tender of 6,528 shares of Visa Class B-1 common stock in exchange for Visa Class B-2 and Class C common stock[37] - The Company recorded a gain of $1.4 million on its Visa Class C common stock, marked to fair value based on the closing price of Visa Class A common stock on June 28, 2024 ($262.47 per share)[37] - The carrying value of Visa B-2 shares is nominal as of June 30, 2024[37] (d) Other-Than-Temporary Impairment Explains the evaluation process for other-than-temporary impairment of investment securities - Management evaluates securities for other-than-temporary impairment (OTTI) quarterly, considering factors like duration and extent of fair value decline, issuer's financial condition, macroeconomic impact, and intent/likelihood of selling the security[38][39] - The Company does not intend to sell nor does it anticipate being required to sell any securities in an unrealized loss position as of June 30, 2024, supported by strong capital and liquidity[41] - Unrealized losses on U.S. government sponsored enterprises, residential mortgage-backed securities, SBA-guaranteed securities, and corporate bonds are attributed to interest rate changes, not credit quality, and are not considered other-than-temporarily impaired[41][42][43] (5) Loan Portfolio and Allowance for Credit Losses Provides a detailed breakdown of the loan portfolio, allowance for credit losses, and credit quality Loan Portfolio by Segment Categorizes the loan portfolio by type and geographic region, including commercial and residential loans Loan Portfolio by Segment (Unaudited) - As of June 30, 2024 | Loan Type (thousands) | New York and other states (thousands) | Florida (thousands) | Total (thousands) | |:---|:---|:---|:---| | Commercial real estate | $215,840 | $39,187 | $255,027 | | Other Commercial | $26,748 | $666 | $27,414 | | First mortgages | $2,743,992 | $1,568,619 | $4,312,611 | | Home equity loans | $44,420 | $13,609 | $58,029 | | Home equity lines of credit | $221,067 | $148,996 | $370,063 | | Installment | $10,844 | $4,324 | $15,168 | | Total loans, net | $3,262,911 | $1,775,401 | $5,038,312 | | Less: Allowance for credit losses | | | $49,772 | | Net loans | | | $4,988,540 | - Included in commercial loans are Paycheck Protection Program (PPP) loans totaling $341 thousand as of June 30, 2024, down from $620 thousand at December 31, 2023[46] - Real estate construction loans totaled $24.9 million at June 30, 2024, with $8.0 million secured by first mortgages to residential borrowers and $16.9 million to commercial borrowers for residential construction projects, primarily in New York[46] Allowance for Credit Losses on Loans (ACLL) Details the methodology and provision for the allowance for credit losses on loans - The Company enhanced its ACLL calculation by incorporating peer data into the Discounted Cash Flow Methodology, using a Moody's Baseline Scenario for a four-quarter forecast period, and a four-quarter straight-line reversion period[47] - Qualitative considerations are now allocated using a weighted scorecard framework[47] - The enhancement did not have a material impact on the Company's financial statements[48] Provision (Credit) for Credit Losses (Unaudited) - Three and Six Months Ended June 30 | Metric (thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Provision (Credit) for credit losses | $500 | ($500) | $1,100 | ($200) | | Provision for credit losses on loans | $500 | - | $1,100 | $600 | | Provision (Credit) for unfunded commitments | - | ($500) | - | ($800) | Loan Credit Quality Assesses the credit quality of commercial and residential loan portfolios, including past due loans - The Company categorizes commercial loans into risk categories (Special Mention, Substandard, Doubtful) based on borrower's ability to service debt, financial information, payment history, and economic trends[57][58] - For homogeneous loan pools (residential mortgages, home equity lines, installment loans), credit risk is identified by payment status, reviewed daily by the Bank's collection area and monthly for allowance adequacy[59] Commercial Loan Risk Rating (Unaudited) - As of June 30, 2024 | Risk Rating (thousands) | Commercial Loans (thousands) | Commercial Other (thousands) | |:---|:---|:---|\ | Pass | $252,401 | $26,778 | | Special Mention | $1,828 | $37 | | Substandard | $759 | $285 | | Doubtful | $39 | $314 | | Total | $255,027 | $27,414 | Residential Loan Risk Rating (Unaudited) - As of June 30, 2024 | Risk Rating (thousands) | Residential First Mortgage (thousands) | Home Equity Loans (thousands) | Home Equity Lines of Credit (thousands) | Installments (thousands) | |:---|:---|:---|:---|:---|\ | Performing | $4,298,097 | $57,575 | $367,054 | $15,015 | | Nonperforming | $14,514 | $454 | $3,009 | $153 | | Total | $4,312,611 | $58,029 | $370,063 | $15,168 | Aging of Past Due Loans by Region (Unaudited) - As of June 30, 2024 (Total) | Loan Type (thousands) | 30-59 Days Past Due (thousands) | 60-89 Days Past Due (thousands) | 90+ Days Past Due (thousands) | Total 30+ days Past Due (thousands) | Current (thousands) | Total Loans (thousands) | |:---|:---|:---|:---|:---|:---|:---|\ | Commercial real estate | $1,061 | - | $518 | $1,579 | $253,448 | $255,027 | | Other Commercial | - | - | $527 | $527 | $26,887 | $27,414 | | First mortgages | $3,246 | $2,213 | $7,201 | $12,660 | $4,299,951 | $4,312,611 | | Home equity loans | $40 | $152 | $286 | $478 | $57,551 | $58,029 | | Home equity lines of credit | $1,006 | $228 | $1,326 | $2,560 | $367,503 | $370,063 | | Installment | $102 | $4 | $104 | $210 | $14,958 | $15,168 | | Total | $5,455 | $2,597 | $9,962 | $18,014 | $5,020,298 | $5,038,312 | Loan Modifications Reports on modifications made to loans for borrowers experiencing financial difficulty - The Company modified loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2024 and 2023, primarily through payment delays[77][79] Loans Modified to Borrowers in Financial Difficulty (Unaudited) - Three Months Ended June 30 | Loan Type (thousands) | 2024 Payment Delay (thousands) | % of Total Class of Loans (2024) | 2023 Payment Delay (thousands) | % of Total Class of Loans (2023) | |:---|:---|:---|:---|:---|\ | First mortgages | $194 | 0.00% | $580 | 0.01% | | Home equity lines of credit | $167 | 0.05% | $50 | 0.02% | | Total | $361 | 0.01% | $630 | 0.01% | - The nature of modifications resulting in classification as a loan modification was typically the borrower filing for bankruptcy protection (Chapter 13 or Chapter 7)[89][90] (6) Fair Value of Financial Instruments Defines fair value measurements and categorizes financial assets and liabilities by fair value hierarchy - Fair value is defined as the exchange price received for an asset or paid to transfer a liability in an orderly transaction between market participants[91] - Fair value hierarchy includes Level 1 (quoted prices in active markets), Level 2 (other observable inputs), and Level 3 (significant unobservable inputs)[91][92] - The Company's Visa Class C shares, valued at $1.4 million as of June 30, 2024, are classified as Level 1 based on Visa Class A shares[96] Fair Value of Financial Instruments (Unaudited) - As of June 30, 2024 | Metric (thousands) | Carrying Value (thousands) | Level 1 (thousands) | Level 2 (thousands) | Level 3 (thousands) | Total Fair Value (thousands) | |:---|:---|:---|:---|:---|:---|\ | Financial assets: | | | | | | | Cash and cash equivalents | $536,113 | $536,113 | - | - | $536,113 | | Securities available for sale | $395,177 | - | $395,177 | - | $395,177 | | Held to maturity securities | $5,921 | - | $5,819 | - | $5,819 | | Net loans | $4,988,540 | - | - | $4,466,822 | $4,466,822 | | Accrued interest receivable | $14,649 | $214 | $1,941 | $12,494 | $14,649 | | Financial liabilities: | | | | | | | Demand deposits | $745,227 | $745,227 | - | - | $745,227 | | Interest bearing deposits | $4,515,157 | $2,691,478 | $1,823,679 | - | $4,515,157 | | Short-term borrowings | $89,720 | - | $89,720 | - | $89,720 | | Accrued interest payable | $3,445 | $216 | $3,229 | - | $3,445 | (7) Accumulated Other Comprehensive Loss Summarizes the components and changes in accumulated other comprehensive loss, net of tax Accumulated Other Comprehensive Loss (Unaudited) - Three Months Ended June 30, 2024 | Metric (thousands) | Balance at 4/1/2024 (thousands) | Other Comprehensive income-Before Reclassifications (thousands) | Amount reclassified from Accumulated Other Comprehensive Loss (thousands) | Other Comprehensive Three months ended 6/30/2024 (thousands) | Balance at 6/30/2024 (thousands) | |:---|:---|:---|:---|:---|:---|\ | Net unrealized holding gain on securities available for sale, net of tax | ($25,277) | $642 | - | $642 | ($24,635) | | Net change in overfunded position in pension and postretirement plans arising during the year, net of tax | $13,476 | - | - | - | $13,476 | | Net change in net actuarial gain and prior service cost on pension and postretirement plans, net of tax | ($2,962) | - | ($147) | ($147) | ($3,109) | | Accumulated other comprehensive income (loss), net of tax | ($14,763) | $642 | ($147) | $495 | ($14,268) | Accumulated Other Comprehensive Loss (Unaudited) - Six Months Ended June 30, 2024 | Metric (thousands) | Balance at 1/1/2024 (thousands) | Other Comprehensive loss-Before Reclassifications (thousands) | Amount reclassified from Accumulated Other Comprehensive Income (thousands) | Other Comprehensive Six months ended 6/30/2024 (thousands) | Balance at 6/30/2024 (thousands) | |:---|:---|:---|:---|:---|:---|\ | Net unrealized holding loss on securities available for sale, net of tax | ($23,899) | ($736) | - | ($736) | ($24,635) | | Net change in overfunded position in pension and postretirement plans arising during the year, net of tax | $13,476 | - | - | - | $13,476 | | Net change in net actuarial gain and prior service cost on pension and postretirement plans, net of tax | ($2,814) | - | ($295) | ($295) | ($3,109) | | Accumulated other comprehensive loss, net of tax | ($13,237) | ($736) | ($295) | ($1,031) | ($14,268) | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (Unaudited) - Three and Six Months Ended June 30 | Metric (thousands) | Three Months Ended June 30, 2024 (thousands) | Three Months Ended June 30, 2023 (thousands) | Six Months Ended June 30, 2024 (thousands) | Six Months Ended June 30, 2023 (thousands) | Affected Line Item in Financial Statements | |:---|:---|:---|:---|:---|:---|\ | Amortization of net actuarial gain | $202 | $114 | $405 | $228 | Salaries and employee benefits | | Amortization of prior service cost | ($3) | ($3) | ($6) | ($6) | Salaries and employee benefits | | Income tax benefit | ($52) | ($29) | ($104) | ($58) | Income taxes | | Net of tax | $147 | $82 | $295 | $164 | | (8) Revenue from Contracts with Customers Details non-interest income sources and revenue recognition policies under ASC 606 Non-Interest Income (Unaudited) - Three Months Ended June 30 | Metric (thousands) | 2024 (thousands) | 2023 (thousands) | Change (YoY) (thousands) | |:---|:---|:---|:---| | Service Charges on Deposits (Overdraft fees) | $654 | $723 | -$69 | | Service Charges on Deposits (Other) | $520 | $554 | -$34 | | Interchange Income | $1,288 | $1,628 | -$340 | | Unrealized gain recognized on equity securities | $1,360 | - | +$1,360 | | Wealth management fees | $1,609 | $1,412 | +$197 | | Other | $220 | $281 | -$61 | | Total non-interest income | $5,651 | $4,598 | +$1,053 | Non-Interest Income (Unaudited) - Six Months Ended June 30 | Metric (thousands) | 2024 (thousands) | 2023 (thousands) | Change (YoY) (thousands) | |:---|:---|:---|:---| | Service Charges on Deposits (Overdraft fees) | $1,317 | $1,403 | -$86 | | Service Charges on Deposits (Other) | $1,031 | $1,086 | -$55 | | Interchange Income | $2,885 | $3,107 | -$222 | | Unrealized gain recognized on equity securities | $1,360 | - | +$1,360 | | Wealth management fees | $3,425 | $3,186 | +$239 | | Other | $476 | $485 | -$9 | | Total non-interest income | $10,494 | $9,267 | +$1,227 | - Service charges on Deposit Accounts are recognized at the time of transaction or over the month for maintenance fees, and at the point of overdraft[111] (9) Operating Leases Outlines the accounting for operating leases, including ROU assets, lease liabilities, and future payments - Operating lease ROU assets and lease liabilities are recognized at commencement based on the present value of lease payments over the lease term, using the incremental collateralized borrowing rate[115] - Lease expiration dates range from two months to 20.3 years, with a weighted average remaining lease term of 8.3 years and a weighted average discount rate of 3.16% as of June 30, 2024[116][117] Total Lease Costs (Unaudited) - Three and Six Months Ended June 30 | Metric (thousands) | Three Months Ended June 30, 2024 (thousands) | Three Months Ended June 30, 2023 (thousands) | Six Months Ended June 30, 2024 (thousands) | Six Months Ended June 30, 2023 (thousands) | |:---|:---|:---|:---|:---|\ | Operating lease cost | $2,036 | $2,037 | $4,133 | $4,087 | | Variable lease cost | $588 | $619 | $1,194 | $1,204 | | Total Lease costs | $2,624 | $2,656 | $5,327 | $5,291 | Future Minimum Lease Payments (Unaudited) - As of June 30, 2024 | Year | Amount (thousands) | |:---|:---|\ | 2024 (remaining) | $4,269 | | 2025 | $8,262 | | 2026 | $7,237 | | 2027 | $6,029 | | 2028 | $4,841 | | Thereafter | $17,352 | | Total lease payments | $47,990 | | Less: Interest | $5,964 | | Present value of lease liabilities | $42,026 | (10) Regulatory Capital Requirements Confirms compliance with regulatory capital adequacy requirements for the Company and Bank - As of June 30, 2024, the Company and Bank meet all capital adequacy requirements to which they are subject[120] - The Bank is categorized as 'well capitalized' under the regulatory framework for prompt corrective action as of June 30, 2024 and December 31, 2023[121] Bank Only Capital Ratios (Unaudited) - As of June 30, 2024 | Metric (thousands) | Amount (thousands) | Ratio | Minimum for Well Capitalized | Minimum for Capital Adequacy plus Capital Conservation Buffer | |:---|:---|:---|:---|:---|\ | Tier 1 leverage ratio | $644,776 | 10.357% | 5.000% | 4.000% | | Common equity tier 1 capital | $644,776 | 18.524% | 6.500% | 7.000% | | Tier 1 risk-based capital | $644,776 | 18.524% | 8.000% | 8.500% | | Total risk-based capital | $688,385 | 19.776% | 10.000% | 10.500% | Consolidated Capital Ratios (Unaudited) - As of June 30, 2024 | Metric (thousands) | Amount (thousands) | Ratio | Minimum for Capital Adequacy plus Capital Conservation Buffer | |:---|:---|:---|:---|\ | Tier 1 leverage ratio | $668,882 | 10.954% | 4.000% | | Common equity tier 1 capital | $668,882 | 19.211% | 7.000% | | Tier 1 risk-based capital | $668,882 | 19.211% | 8.500% | | Total risk-based capital | $712,503 | 20.464% | 10.500% | (11) New Accounting Pronouncements Discusses new accounting standards on segment reporting and income taxes, and their expected impact - ASU 2023-07 (Segment Reporting) expands reportable segment disclosure requirements through enhanced disclosures about significant segment expenses, effective for fiscal years beginning after December 15, 2023[127] - ASU 2023-09 (Income Taxes) requires additional income tax disclosures, including specific categories in the rate reconciliation, effective for fiscal years beginning after December 15, 2024[128] - The Company is evaluating the requirements of both ASUs but does not currently expect them to have a material impact on its consolidated financial statements[127][128] Report of Independent Registered Public Accounting Firm Presents the independent auditor's review of interim financial information and confirmation of GAAP conformity - Crowe LLP reviewed the interim financial information for the periods ended June 30, 2024 and 2023 and found no material modifications needed for conformity with GAAP[130] - The consolidated statement of financial condition as of December 31, 2023, previously audited, is fairly stated in all material respects[131] - A review is substantially less in scope than an audit, and accordingly, an opinion on the financial statements as a whole is not expressed[132] Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes TrustCo's financial performance and condition for the three and six months ended June 30, 2024 Introduction Provides an overview of the financial review scope and presentation of net interest income - The review focuses on factors affecting financial condition and results of operations for the three and six months ended June 30, 2024, with comparisons to 2023[133] - Net interest income and interest margin are presented on a non-GAAP taxable equivalent basis, with no difference from GAAP measures for the periods presented[133] Economic Overview Summarizes key economic indicators, interest rate changes, and regulatory impacts on the financial environment - In Q2 2024, the S&P 500 Index was up 3.92%, Nasdaq up 8.3%, and Dow Jones Industrial Average down 1.7% compared to Q1 2024[135] - The 10-year Treasury bond averaged 4.45% in Q2 2024 (up 29 bps from Q1 2024), and the 2-year Treasury bond averaged 4.83% (up 35 bps), slightly increasing the inverted yield curve[135] - The FOMC increased the Federal Funds rate target range seven times in 2022 and four times in 2023, totaling 525 basis points, to 5.25%-5.50%, where it remained as of June 30, 2024, in response to inflationary pressures[135] - The FDIC implemented a special assessment on banks with total assets >$5 billion and uninsured deposits >$5 billion, collected at ~13.4 bps annually for eight quarters, effective April 1, 2024[137] - TrustCo will incur no additional cost from the FDIC special assessment as its uninsured deposits are under $5 billion[137] Financial Overview Highlights key financial performance metrics including net income, EPS, and returns on assets and equity Key Financial Performance (Unaudited) - Three Months Ended June 30 | Metric | 2024 | 2023 | Change (YoY) | |:---|:---|:---|:---|\ | Net Income | $12.6 million | $16.4 million | -$3.8 million | | Diluted EPS | $0.66 | $0.86 | -$0.20 | | Return on average assets | 0.82% | 1.09% | -0.27% | | Return on average equity | 7.76% | 10.61% | -2.85% | | GAAP Net Interest Income | -$6.3 million (-14.2%) | | | | Provision for Credit Losses | +$1.0 million | | | | Noninterest Income | +$1.1 million | | | | Noninterest Expense | -$868 thousand | | | Key Financial Performance (Unaudited) - Six Months Ended June 30 | Metric | 2024 | 2023 | Change (YoY) | |:---|:---|:---|:---|\ | Net Income | $24.7 million | $34.1 million | -$9.4 million | | Diluted EPS | $1.30 | $1.79 | -$0.49 | | Return on average assets | 0.81% | 1.14% | -0.33% | | Return on average equity | 7.65% | 11.22% | -3.57% | | GAAP Net Interest Income | -$16.7 million (-18.3%) | | | | Provision for Credit Losses | +$1.3 million | | | | Noninterest Income | +$1.1 million | | | | Noninterest Expense | -$3.6 million | | | - Noninterest income increased primarily due to a $1.4 million gain from the conversion privilege of Visa Class C common stock[140][142][143] Asset/Liability Management Discusses strategies for managing earnings, liquidity, and interest rate sensitivity through asset and liability mix - TrustCo aims to generate earnings through core deposits funding a prudent mix of earning assets, maintaining adequate liquidity, and reducing net interest income sensitivity to interest rate changes[144] - Interest rates, especially the Federal Funds rate and 10-year Treasury bond yield, significantly impact operations, influencing loan and deposit originations, interest income/expense, and the fair value of available-for-sale securities[146][147] - The 10-year Treasury yield increased 29 basis points on average during Q2 2024 compared to Q1 2024 and increased 85 basis points compared to Q2 2023[148] - Net interest margin for Q2 2024 was 2.53%, down 45 basis points YoY, primarily due to increased interest expense from the current interest rate environment and a shift from demand/savings to higher-rate time deposits[150][167] Earning Assets Analyzes the performance and composition of the company's interest-earning assets, including loans and securities - Total average interest earning assets increased from $5.91 billion in Q2 2023 to $5.98 billion in Q2 2024, with the average yield increasing from 3.80% to 4.06%[153] - Interest income on average earning assets increased from $56.1 million in Q2 2023 to $60.6 million in Q2 2024, driven by higher interest rates on loan originations and upward repricing of variable-rate loans[153] - The mix of assets shifted, with Federal Funds sold and other short-term investments and securities available for sale decreasing, while loans increased[153] Loans Details the performance and composition of the loan portfolio, including residential and commercial loans Loan Portfolio Performance (Unaudited) - Three Months Ended June 30 | Metric | Q2 2024 | Q2 2023 | Change (YoY) | |:---|:---|:---|:---|\ | Average balance of loans | $5.02 billion | $4.84 billion | +$180 million | | Yield on loans | 4.04% | 3.81% | +23 bps | | Interest income on loans | $50.7 million | $46.1 million | +$4.6 million | | Average balance of residential mortgage loans | $4.36 billion | $4.27 billion | +2.1% | | Average yield on residential mortgage loans | 3.75% | 3.56% | +19 bps | | Average balance of commercial loans | $280.6 million | $249.0 million | +$31.5 million | | Average yield on commercial loans | 5.37% | 5.29% | +8 bps | | Average balance of home equity credit lines | $364.2 million | $303.1 million | +20.1% | | Average yield on home equity credit lines | 6.42% | 6.00% | +42 bps | - TrustCo actively markets residential loan products with unique aspects like low closing costs, fast approvals, and no escrow/mortgage insurance, expecting these features to attract customers as long-term interest rates decrease[155] - The Company has sought to remain selective in underwriting commercial loans in pursuit of a favorable risk/reward balance[156] Securities Available for Sale Reviews the balance, yield, and unrealized losses of securities available for sale Securities Available for Sale Performance (Unaudited) - Three Months Ended June 30 | Metric | Q2 2024 | Q2 2023 | Change (YoY) | |:---|:---|:---|:---|\ | Average balance | $437.6 million | $505.8 million | -$68.2 million | | Average yield | 2.58% | 2.27% | +31 bps | | Net unrealized loss (as of June 30) | $33.2 million | $32.2 million (Dec 31, 2023) | +$1.0 million (vs Dec 31, 2023) | - The decrease in balance reflects routine paydowns, calls, and maturities, partially offset by new investment purchases[157] - The portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises, Small Business Administration participation certificates, corporate bonds and municipal bonds[157] Held to Maturity Securities Examines the balance, yield, and unrecognized losses of held-to-maturity securities Held to Maturity Securities Performance (Unaudited) - Three Months Ended June 30 | Metric | Q2 2024 | Q2 2023 | Change (YoY) | |:---|:---|:---|:---|\ | Average balance | $6.1 million | $7.2 million | -$1.1 million | | Average yield | 4.28% | 4.17% | +11 bps | | Net unrecognized loss (as of June 30) | $102 thousand | $62 thousand (Dec 31, 2023) | +$40 thousand (vs Dec 31, 2023) | - The decrease in balances reflects routine paydowns; no new securities were added to this portfolio during the period[159] - The portfolio consisted solely of agency issued mortgage-backed securities and collateralized mortgage obligations, recorded at amortized cost[160] Federal Funds Sold and Other Short-term Investments Discusses the role and performance of short-term investments in generating income and liquidity Federal Funds Sold and Other Short-term Investments Performance (Unaudited) - Three Months Ended June 30 | Metric | Q2 2024 | Q2 2023 | Change (YoY) | |:---|:---|:---|:---|\ | Average balance | $506.5 million | $551.1 million | -$44.6 million | | Yield | 5.48% | 5.07% | +41 bps | | Interest income | $6.9 million | $7.0 million | -$76 thousand | - 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[161] Funding Opportunities Explores the company's funding sources, primarily traditional deposit vehicles, and their cost - 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[162] Interest Bearing Deposit Accounts Performance (Unaudited) - Three Months Ended June 30 | Metric | Q2 2024 | Q2 2023 | Change (YoY) | |:---|:---|:---|:---|\ | Total average interest bearing deposit accounts (millions) | $4.55 billion | $4.42 billion | +$130.7 million | | Average rate paid | 2.00% | 1.07% | +93 bps | | Total interest expense on deposits (millions) | $22.6 million | $11.8 million | +$10.8 million | | Interest bearing demand account average balances | Down 6.9% | | | | Certificates of deposit average balances | Up 36.5% | | | | Non-interest demand average balances | Down 6.8% | | | | Average savings balances | Decreased 15.3% | | | | Money market balances | Down 14.5% | | | Maturity of Total Time Deposits (Unaudited) - As of June 30, 2024 | Maturity | Amount (thousands) | |:---|:---|\ | Under 1 year | $1,683,880 | | 1 to 2 years | $61,399 | | 2 to 3 years | $93,111 | | 3 to 4 years | $954 | | 4 to 5 years | $870 | | Over 5 years | $48 | | Total | $1,840,262 | - Approximately $1.02 billion of the deposit portfolio was uninsured as of June 30, 2024[164] Net Interest Income Analyzes the trends and drivers of net interest income, spread, and margin Net Interest Income Performance (Unaudited) - Three and Six Months Ended June 30 | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Tax equivalent net interest income (millions) | $37.8 million | $44.1 million | $74.4 million | $91.0 million | | Net interest spread | 2.09% | 2.74% | 2.05% | 2.90% | | Net interest margin | 2.53% | 2.98% | 2.48% | 3.10% | - Net interest income decreased due to margin compression as funding shifted from demand deposits and savings to higher rate time deposits in a rising interest rate market[167] - Management expects some additional compression but believes the Company is nearing the bottom of this rate cycle, with efforts to lower time deposit rates helping future margins[167] Nonperforming Assets Reports on nonperforming loans, foreclosed real estate, and the allowance for credit losses coverage Nonperforming Loans (NPLs) and Coverage Ratio (Unaudited) - As of June 30, 2024 and December 31, 2023 | Metric | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Total NPLs | $19.2 million | $17.7 million | | Coverage ratio (ACLL to NPLs) | 259.4% | 275.0% | | Residential real estate loans (NPLs) | $18.0 million | $16.6 million | | Commercial loans and mortgages (NPLs) | $1.1 million | $850 thousand | | Installment loans (NPLs) | $153 thousand | $166 thousand | - No loans were 90 days or more past due and still accruing interest as of June 30, 2024, and December 31, 2023[168] - The loan portfolio is diversified, with 64.8% of its gross loan portfolio balances in New York and surrounding areas and 35.2% in Florida as of June 30, 2024[171] - Foreclosed real estate was $2.3 million at June 30, 2024, compared to $194 thousand at December 31, 2023[173] Net Charge-Off Ratio (Unaudited) - Three and Six Months Ended June 30 | Loan Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Commercial | 0.00% | -0.05% | 0.00% | -0.05% | | Real estate mortgage - 1 to 4 family | 0.00% | 0.00% | 0.00% | -0.01% | | Installment | 0.03% | 0.39% | 0.26% | 0.59% | | Total | 0.00% | 0.00% | 0.00% | -0.01% | Liquidity and Interest Rate Sensitivity Discusses liquidity management, contingent funding, and the impact of interest rate changes on capital - TrustCo actively manages liquidity through target ratios and contingency plans, maintaining significant cash, cash equivalents, and investment securities[180] - The Company has contingent funding alternatives, including FHLBNY and FRBNY borrowing capacity, and incorporates brokered deposits as a potential source[180] - An industry standard external model is used to identify, quantify, and project changes in interest rates and their impact on the fair value of capital, incorporating historical prepayment speeds and deposit behavior[181] Impact on Fair Value of Capital (Unaudited) - As of June 30, 2024 | Interest Rate Change | Estimated Percentage of Fair Value of Capital to Fair Value of Assets | |:---|:---|\ | +400 BP | 20.10% | | +300 BP | 20.70% | | +200 BP | 21.10% | | +100 BP | 23.10% | | Current rates | 23.90% | | -100 BP | 23.60% | | -200 BP | 22.00% | | -300 BP | 19.70% | | -400 BP | 16.90% | Noninterest Income Reviews the sources and changes in noninterest income, including service charges and wealth management fees Noninterest Income Performance (Unaudited) - Three and Six Months Ended June 30 | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Total noninterest income | $5.7 million | $4.6 million | $10.5 million | $9.3 million | | Change (YoY) | +$1.1 million | | +$1.2 million | | | Primary driver | Unrealized gain of $1.4 million on Visa Class C Common stock | | Unrealized gain of $1.4 million on Visa Class C Common stock | | | Financial services income (Q2 YoY) | Up $197 thousand | | | | | Fees for services to customers (Q2 YoY) | Down $448 thousand | | | | | Fair value of assets under management (June 30, 2024) | $1.1 billion | | | | | Fair value of assets under management (Dec 31, 2023) | $967 million | | | | | Fair value of assets under management (June 30, 2023) | $940 million | | | | Noninterest Expenses Analyzes the components and trends of noninterest expenses, including salaries and insurance Noninterest Expenses Performance (Unaudited) - Three and Six Months Ended June 30 | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Total noninterest expenses | $26.5 million | $27.3 million | $51.4 million | $55.0 million | | Change (YoY) | -$800 thousand | | -$3.6 million | | | Salaries and employee benefits (Q2 YoY) | -$602 thousand | | -$2.5 million (6-month YoY) | | | FDIC and other insurance (Q2 YoY) | -$288 thousand | | | | | Other expenses (Q2 YoY) | -$498 thousand | | -$1.2 million (6-month YoY) | | | Professional services (Q2 YoY) | +$210 thousand | | | | | Outsourced services (Q2 YoY) | +$264 thousand | | +$469 thousand (6-month YoY) | | | Full time equivalent headcount (June 30, 2024) | 753 | | | | | Full time equivalent headcount (Dec 31, 2023) | 750 | | | | | Full time equivalent headcount (June 30, 2023) | 791 | | | | Income Taxes Presents the income tax expense and effective tax rates for the reported periods Income Tax Expense and Effective Tax Rates (Unaudited) - Three and Six Months Ended June 30 | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Income tax expense (millions) | $3.9 million | $5.5 million | $7.7 million | $11.4 million | | Effective tax rate | 23.8% | 25.0% | 23.8% | 25.0% | Capital Resources Details shareholders' equity, dividend payout, and regulatory capital ratio compliance - Total shareholders' equity at June 30, 2024, was $655.2 million, compared to $621.4 million at June 30, 2023[189] - A dividend of $0.36 per share was declared in Q2 2024, resulting in a payout ratio of 54.57% based on Q2 2024 earnings[189] - The Company and Bank maintain capital ratios (Tier 1 leverage, CET1, Tier 1 risk-based, total risk-based) exceeding minimum standards, including the capital conservation buffer[189][192] - The consolidated equity to total assets ratio was 10.73% at June 30, 2024, compared to 10.46% at December 31, 2023[191] Critical Accounting Policies and Estimates Identifies key accounting policies and estimates, particularly the allowance for credit losses - The accounting policy relating to the allowance for credit losses is considered a critical accounting policy due to measurement uncertainty and subjective judgment necessary in evaluating the levels of the allowance required to cover the life-time losses in the loan portfolio[196] - No significant changes to critical accounting policies and estimates occurred during the three months ended June 30, 2024, other than what is set forth immediately below[195] Quantitative and Qualitative Disclosures About Market Risk Discusses the company's principal market risk, interest rate risk, and its management strategies - The Company's principal market risk is interest rate risk, as detailed in the 'Liquidity and Interest Rate Sensitivity' section[208] - TrustCo manages interest rate risk to meet short-term earning goals and respond to future rate changes, maintaining an average of $506.5 million in Federal Funds sold and other short-term investments in Q2 2024[208] - The Company does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as 'derivatives'[208] Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and reports on internal control changes Disclosure Controls and Procedures Evaluates the effectiveness of the company's disclosure controls and procedures - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2024, ensuring timely and accurate reporting under the Exchange Act[209] - Management acknowledges that controls provide only reasonable assurance and cannot guarantee detection of all errors or fraud[210] Changes in Internal Control over Financial Reporting Reports on any material changes in internal control over financial reporting during the quarter - There have been no changes in internal control over financial reporting during the quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[211] Part II. OTHER INFORMATION Contains additional information including legal proceedings, risk factors, and equity security sales Legal Proceedings States that there are no legal proceedings to report for the current period - None[212] Risk Factors Updates risk factors, emphasizing interest rate impacts and ongoing inflationary pressures - Changes in interest rates have impacted and may continue to impact our financial condition and results of operations, particularly net interest income, which is sensitive to the spread between asset yields and liability costs[214] - The FOMC increased the federal funds rate target range by 525 basis points in 2022-2023 to 5.25%-5.50%, where it remains as of June 30, 2024, in response to inflationary pressures[215] - Ongoing inflationary pressures and elevated prices may continue to affect results by deteriorating borrowers' ability to repay loans and increasing the Company's operating costs[218][219] Unregistered Sales of Equity Securities and Use of Proceeds Details the company's share repurchase program and shares bought during the period - On March 29, 2024, the Board authorized a share repurchase program of up to 200,000 shares (approx. 1% of currently outstanding common stock), expiring March 27, 2025[194][222] Issuer Purchases of Common Shares (Unaudited) - Three Months Ended June 30, 2024 | Period | Total shares purchased | Average price per share | Shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs | |:---|:---|:---|:---|:---|\ | April 1, 2024 through April 30, 2024 | - | - | - | 200,000 | | May 1, 2024 through May 31, 2024 | - | - | - | 200,000 | | June 1, 2024 through June 30, 2024 | 14,000 | $26.68 | 14,000 | 186,000 | | Total | 14,000 | $26.68 | 14,000 | 186,000 | Defaults Upon Senior Securities States that there are no defaults upon senior securities to report - None[223] Mine Safety Disclosures States that there are no mine safety disclosures to report - None[223] Other Information Confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or executive officers - 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[223] Exhibits Lists the exhibits filed with the Form 10-Q, including corporate organizational documents, the independent auditor's letter, certifications from executive officers (Rule 13a-15(e)/15d-15(e) and Section 1350), and Inline XBRL formatted financial data - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Crowe LLP Letter Regarding Unaudited Interim Financial Information, Rule 13a-15(e)/15d-15(e) Certifications, Section 1350 Certifications, and Inline XBRL formatted financial data[223] SIGNATURES Provides the signatures of the Chairman, President, CEO, and Executive Vice President, CFO - Report signed by Robert J. McCormick (Chairman, President and CEO) and Michael M. Ozimek (Executive Vice President and CFO) on August 9, 2024[224]