TrustBank NY(US:TRST)2020-11-06 20:01markdown Part I. FINANCIAL INFORMATION [Item 1. Consolidated Interim Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Interim%20Financial%20Statements%20(Unaudited)) The unaudited consolidated interim financial statements for TrustCo Bank Corp NY as of September 30, 2020, show a year-over-year decrease in net income and comprehensive income for both the third quarter and the first nine months. Total assets, loans, and deposits grew compared to year-end 2019, while the allowance for loan losses was increased, reflecting the economic environment. The company's capital ratios remain strong and well above regulatory requirements [Consolidated Statements of Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income) For the third quarter of 2020, net income was $14.1 million, a decrease from $14.7 million in the same period of 2019. For the nine-month period, net income fell to $38.6 million from $43.9 million year-over-year. The decline was primarily driven by a decrease in net interest income and a $5.0 million provision for loan losses in 2020, compared to a credit for loan losses in 2019 | Metric (in thousands, except per share) | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $38,165 | $38,643 | $114,399 | $117,566 | | Provision for Loan Losses | $1,000 | $- | $5,000 | $(41) | | **Net Income** | **$14,071** | **$14,708** | **$38,638** | **$43,933** | | Diluted EPS | $0.146 | $0.152 | $0.400 | $0.453 | [Consolidated Statements of Financial Condition](index=5&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) As of September 30, 2020, total assets increased to $5.74 billion from $5.22 billion at the end of 2019. This growth was primarily fueled by a significant rise in cash and cash equivalents (from $457 million to $956 million) and an increase in net loans. Total deposits also saw substantial growth, rising to $4.90 billion from $4.45 billion over the same period | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Cash and Cash Equivalents | $956,319 | $456,846 | | Net Loans | $4,165,432 | $4,017,879 | | **Total Assets** | **$5,735,929** | **$5,221,322** | | Total Deposits | $4,899,050 | $4,450,016 | | Total Shareholders' Equity | $560,528 | $538,257 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2020, the company experienced a net increase in cash and cash equivalents of $499.5 million, a significant reversal from the $53.0 million decrease in the prior-year period. This was driven by strong cash inflows from financing activities, primarily a $449.0 million net increase in deposits, which far outpaced the net cash used in investing activities | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $47,906 | $49,771 | | Net Cash used in Investing Activities | $(19,013) | $(261,063) | | Net Cash from Financing Activities | $470,580 | $158,260 | | **Net Increase (Decrease) in Cash** | **$499,473** | **$(53,032)** | [Notes to Consolidated Interim Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Interim%20Financial%20Statements) The notes provide detailed information on the company's financial position and performance. Key areas include the composition of the loan portfolio, which grew to $4.21 billion, and the related allowance for loan losses, which increased to $49.1 million due to a $5.0 million provision. The company provided significant COVID-19 related loan deferrals, which decreased from $190 million at June 30 to $7 million by September 30, 2020. The company's capital ratios remain well above regulatory minimums, classifying it as 'well capitalized' - Total loans grew to **$4.21 billion** as of September 30, 2020, up from **$4.06 billion** at year-end 2019, with first mortgages on 1-to-4 family properties comprising the largest portion of the portfolio at **$3.65 billion**[45](index=45&type=chunk) - The allowance for loan losses increased to **$49.1 million** at September 30, 2020, from **$44.3 million** at the beginning of the year, primarily due to a **$5.0 million** provision for loan losses[56](index=56&type=chunk) - COVID-19 related loan modifications and payment deferrals totaled approximately **$7 million** as of September 30, 2020, a significant reduction from approximately **$190 million** as of June 30, 2020, as many loans returned to regular payment schedules[75](index=75&type=chunk)[123](index=123&type=chunk) - As of September 30, 2020, the Bank was categorized as '**well capitalized**' under the regulatory framework, with all capital ratios significantly exceeding the minimum requirements[116](index=116&type=chunk)[117](index=117&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the slight decrease in Q3 2020 net income to a compressed net interest margin (2.73% vs. 3.04% in Q3 2019) and a $1.0 million provision for loan losses due to COVID-19 uncertainty. These negative impacts were partially offset by a $1.4 million reduction in noninterest expenses. The balance of COVID-related loan deferrals dropped sharply from $190 million in Q2 to $7 million in Q3. The company maintained strong capital and liquidity, and continued to grow its loan and deposit portfolios [COVID-19 Impact](index=43&type=section&id=COVID-19%20Impact) The company actively managed the impact of COVID-19 by providing loan deferrals, which saw a significant decrease from 752 loans totaling $189.7 million at June 30, 2020, to just 30 loans totaling $7.2 million at September 30, 2020. Additionally, the company participated in the Paycheck Protection Program (PPP), processing 663 loans totaling $45.7 million | COVID-19 Loan Deferrals | June 30, 2020 | September 30, 2020 | | :--- | :--- | :--- | | Number of Loans | 752 | 30 | | Outstanding Balance | $189.7 million | $7.2 million | - As of September 30, 2020, the company had processed **663** Paycheck Protection Program (PPP) loans totaling **$45.7 million**[142](index=142&type=chunk) [Financial Overview and Net Interest Income](index=49&type=section&id=Financial%20Overview%20and%20Net%20Interest%20Income) Q3 2020 net income was $14.1 million, down slightly from $14.7 million in Q3 2019. The key driver of this change was a 31 basis point decline in the net interest margin to 2.73%, caused by a sharp drop in yields on interest-earning assets, particularly Federal Funds, which outpaced the reduction in deposit costs. Average interest-earning assets grew by $501.2 million year-over-year - The taxable equivalent net interest margin for Q3 2020 was **2.73%**, a decrease of **31 basis points** from **3.04%** in Q3 2019[156](index=156&type=chunk)[164](index=164&type=chunk) - The margin compression was primarily due to a **209 basis point** decrease in the average yield on Federal Funds sold and other short-term investments, coupled with a **32 basis point** drop in the average loan portfolio yield[164](index=164&type=chunk) - The average rate paid on interest-bearing liabilities decreased by **42 basis points** to **0.52%** in Q3 2020, partially offsetting the decline in asset yields[164](index=164&type=chunk) [Nonperforming Assets and Allowance for Loan Losses](index=55&type=section&id=Nonperforming%20Assets%20and%20Allowance%20for%20Loan%20Losses) Nonperforming loans (NPLs) remained relatively stable at $21.8 million at September 30, 2020. The allowance for loan losses increased to $49.1 million, or 1.17% of total loans, up from 1.09% at year-end 2019. A provision for loan losses of $1.0 million was recorded in Q3 2020, primarily due to economic uncertainty from COVID-19 | Metric | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Nonperforming Loans | $21.8 million | $20.9 million | | Allowance for Loan Losses | $49.1 million | $44.3 million | | Allowance as % of Loans | 1.17% | 1.09% | - The provision for loan losses was **$1.0 million** for Q3 2020, compared to no provision in Q3 2019, reflecting increased economic uncertainty[197](index=197&type=chunk) [Noninterest Income and Expense](index=59&type=section&id=Noninterest%20Income%20and%20Expense) For Q3 2020, noninterest income decreased to $4.3 million from $4.9 million in the prior year. Noninterest expenses showed improvement, declining by $1.4 million to $22.7 million, primarily due to an $826 thousand decrease in salaries and employee benefits, reflecting successful cost control measures - Total noninterest income for Q3 2020 was **$4.3 million**, a decrease from **$4.9 million** in Q3 2019[205](index=205&type=chunk) - Total noninterest expenses decreased by **$1.4 million** year-over-year to **$22.7 million** in Q3 2020, largely driven by lower salaries and benefits expense[207](index=207&type=chunk) [Capital Resources](index=60&type=section&id=Capital%20Resources) The company maintained a strong capital position, with total shareholders' equity rising to $560.5 million. All capital ratios for both the Bank and the consolidated company significantly exceeded the levels required to be considered 'well-capitalized'. The company declared a quarterly dividend of $0.068125 per share, resulting in a dividend payout ratio of 46.68% - Both TrustCo and Trustco Bank's capital levels exceeded the minimum standards to be considered '**well-capitalized**' as of September 30, 2020[212](index=212&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk) - A dividend of **$0.068125 per share** was declared in Q3 2020, representing a payout ratio of **46.68%** of net income[211](index=211&type=chunk) - The company's share repurchase program was suspended in **April 2020** and expired in **June 2020**. No shares were repurchased during the third quarter[217](index=217&type=chunk)[239](index=239&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's principal market risk is identified as interest rate risk. Management actively responds to changes in interest rates to meet earnings goals while positioning for future rate shifts. The COVID-19 pandemic is noted as a factor that may adversely affect the company's sensitivity to market interest rates - The company's primary market risk is **interest rate risk**, which it manages through its asset/liability strategies[231](index=231&type=chunk) - Market disruptions from the COVID-19 pandemic could increase funding costs or intensify pricing competition for loans, potentially impacting earnings[232](index=232&type=chunk) [Item 4. Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were concluded to be effective as of September 30, 2020. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the reporting period[234](index=234&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[236](index=236&type=chunk) Part II. OTHER INFORMATION [Item 1. Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings for the period - None[237](index=237&type=chunk) [Item 1A. Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the risk factors previously disclosed in the company's 2019 Annual Report on Form 10-K or its Q1 2020 Form 10-Q - No material changes to previously disclosed risk factors were reported[238](index=238&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's stock repurchase program, approved in June 2019, was suspended in April 2020 and subsequently expired on June 6, 2020. No shares were repurchased during the third quarter of 2020 - The company's stock repurchase program was suspended in **April 2020** and expired in **June 2020**[239](index=239&type=chunk)