TrustBank NY(TRST) - 2019 Q4 - Annual Report

PART I Business TrustCo Bank Corp NY, a savings and loan holding company, provides general banking, trust, and wealth management services through its subsidiary Trustco Bank across five states, focusing on residential mortgages General and Subsidiaries TrustCo Bank Corp NY, a holding company for Trustco Bank, operates 148 banking offices and manages $927.5 million in trust assets with 814 employees - TrustCo's principal subsidiary is Trustco Bank, a federal savings bank providing general banking services[12][14] - At year-end 2019, the Bank operated 148 banking offices and 162 ATMs across New York, Florida, Vermont, Massachusetts, and New Jersey[14] - The trust department, operating as Trustco Financial Services, had approximately $927.5 million in assets under management as of December 31, 2019[16] - The company had 814 full-time equivalent employees at the end of 2019[13] Competition The company faces intense competition for deposits and loans from diverse financial institutions, competing on pricing, service, and location - The company faces intense competition from commercial banks, savings associations, credit unions, and non-bank entities in its market areas of New York and Central Florida[19] - Competition for loans and deposits is based on interest rates, fees, service quality, and convenience[20] Supervision and Regulation TrustCo and its bank subsidiary are highly regulated by the Federal Reserve and OCC, subject to capital, dividend, and consumer protection rules - TrustCo, as a savings and loan holding company, is supervised by the Federal Reserve Board, while its subsidiary, Trustco Bank, is primarily regulated by the OCC[21] - The Dodd-Frank Act and the subsequent Regulatory Relief Act have significantly changed the financial regulatory landscape, impacting consumer protection, capital requirements, and mortgage lending[24][25] Regulatory Capital Ratios as of December 31, 2019 | Ratio | Trustco Bank | TrustCo (Company) | Minimum Requirement (Well-Capitalized) | | :--- | :--- | :--- | :--- | | Tier 1 Leverage Ratio | 9.94% | 10.25% | > 5.0% | | CET1 Capital Ratio | 18.41% | 18.99% | > 6.5% | | Tier 1 Capital Ratio | 18.41% | 18.99% | > 8.0% | | Total Capital Ratio | 19.67% | 20.24% | > 10.0% | FDIC Deposit Insurance Expense | Year | Expense (in thousands) | | :--- | :--- | | 2019 | $624 | | 2018 | $1,500 | | 2017 | $2,900 | - The Bank must comply with the Community Reinvestment Act (CRA) and received a "satisfactory" rating in its last examination[58] Risk Factors The company faces material risks from interest rate fluctuations, credit defaults, regulatory changes, operational failures, cybersecurity threats, and economic downturns in key markets Market and Economic Risks Earnings are sensitive to interest rate changes and economic downturns, particularly in New York and Florida, due to concentrated residential real estate lending - Net interest income is subject to risk from changes in market interest rates, which could compress the interest rate spread and negatively affect profitability[86] - The company has a geographic concentration of loans, with 74.4% secured by property in New York and 25.6% in Florida, making it vulnerable to local economic downturns[97] - Market volatility could adversely affect the company's ability to access capital and impact its overall business and financial condition[114] Credit and Lending Risks Inherent credit risk from lending activities and potential insufficiency of the allowance for loan losses (ALLL) pose a threat, with CECL adoption expected to impact ALLL methodology - The company is exposed to credit risk, as adverse changes in borrowers' ability to repay loans could materially impact earnings and financial condition[89] - The allowance for loan losses (ALLL) may be insufficient if management's assumptions about the loan portfolio's collectability prove incorrect, potentially requiring material additions to the allowance[90] - The adoption of the CECL accounting standard in 2020 will change the method for calculating credit loss allowances and may require an increase in the ALLL[91] Regulatory, Legal, and Compliance Risks Operating in a highly regulated environment, the company faces risks from changing laws, stringent capital rules, dividend limitations, and potential litigation - Stringent regulatory capital rules could limit growth, require raising additional capital, or result in restrictions on dividends and compensation if not met[92][93] - Changes in banking laws and regulations could have a material impact on operations, compliance costs, and the products and services offered[98][103] - The ability to pay dividends is limited by regulations and the financial condition of the subsidiary bank, Trustco Bank[102] - The company's subsidiary, Trustco Realty Corp., must maintain its status as a REIT; failure to do so would increase the company's effective tax rate[119][123] Operational and Technology Risks Significant operational risks include third-party vendor dependency, cybersecurity threats, data breaches, and system failures, potentially causing financial and reputational harm - The company is dependent on third-party vendors for business infrastructure, creating risk of operational disruption from vendor failure[106][133] - Cyber-attacks and data breaches pose a significant risk, potentially leading to financial loss, litigation, reputational damage, and increased regulatory scrutiny[107][110][112] - A failure in operational or security systems, whether internal or from third parties, could disrupt business, impact financial condition, and cause reputational harm[108] Unresolved Staff Comments The company reports no unresolved staff comments - None[136] Properties The company operates 148 banking offices, with 25 owned and 123 leased, and its executive offices are company-owned - The company operates 148 banking offices, of which 25 are owned and 123 are leased[137] Legal Proceedings The company is involved in ordinary course litigation, but management believes no pending proceedings are materially adverse - In the opinion of management, there are no pending legal proceedings that would be material to the Company's financial condition[138] Mine Safety Disclosure This item is not applicable to the company - Not applicable[139] PART II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TrustCo's common stock trades on NASDAQ under "TRST", with no equity security purchases under public programs in Q4 2019 - The company's common stock is traded on The NASDAQ Stock Market under the symbol "TRST"[143] - There were no shares purchased as part of publicly announced plans or programs in the fourth quarter of 2019[144][145] Selected Financial Data Selected financial data is incorporated by reference from the Annual Report to Shareholders (Exhibit 13) - Information is incorporated by reference from the Annual Report to Shareholders (Exhibit 13)[147] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis is incorporated by reference from the Annual Report to Shareholders (Exhibit 13) - Information is incorporated by reference from the Annual Report to Shareholders (Exhibit 13)[148] Quantitative and Qualitative Disclosures about Market Risk Quantitative and qualitative disclosures about market risk are incorporated by reference from the Annual Report to Shareholders (Exhibit 13) - Information is incorporated by reference from the Annual Report to Shareholders (Exhibit 13)[149] Financial Statements and Supplementary Data Consolidated financial statements, auditor's report, and supplementary data are incorporated by reference from the Annual Report to Shareholders (Exhibit 13) - The consolidated financial statements and auditor's report are incorporated by reference from the Annual Report to Shareholders (Exhibit 13)[151] Changes in and Disagreements with Accountants On Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[152] Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting in Q4 2019 - Management concluded that the Company's disclosure controls and procedures are effective[153] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2019[155] Other Information The company reports no other information for this item - None[156] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement - Information is incorporated by reference from the Company's Proxy Statement[158] Executive Compensation Executive compensation information is incorporated by reference from the 2020 Proxy Statement - Information is incorporated by reference from the Company's Proxy Statement[159] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, detailing outstanding options and available securities under equity compensation plans Equity Compensation Plan Information as of December 31, 2019 | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 519,091 | $6.67 | 1,696,794 | Certain Relationships and Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Proxy Statement - Information is incorporated by reference from the Company's Proxy Statement[164] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2020 Proxy Statement - Information is incorporated by reference from the Company's Proxy Statement[165] PART IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including the Annual Report to Shareholders and officer certifications - The Annual Report to Shareholders for the year ended December 31, 2019 is filed as Exhibit 13[180] - Certifications by the principal executive officer and principal financial officer under Rule 13a-14(a)/15d-14(a) and Section 1350 are included as exhibits[180]