TrustBank NY(TRST) - 2022 Q4 - Annual Report

markdown [Part I](index=4&type=section&id=PART%20I) This section outlines TrustCo Bank Corp NY's business, operations, regulatory environment, human capital, and key risk factors [Business](index=4&type=section&id=Item%201.%20Business) TrustCo Bank Corp NY, a savings and loan holding company, provides banking, trust, and investment services through Trustco Bank - **TrustCo Bank Corp NY** is a savings and loan holding company with its principal subsidiary being **Trustco Bank**, a federal savings bank[13](index=13&type=chunk) - As of year-end 2022, the Bank operated **143 banking offices** and **158 ATMs** across New York, Florida, Vermont, Massachusetts, and New Jersey[15](index=15&type=chunk) - The company's subsidiary, **Trustco Realty Corp.**, is a real estate investment trust (**REIT**) that provides certain New York State tax advantages on its dividend distributions to the Bank[17](index=17&type=chunk) - The company faces **strong competition** from a range of financial institutions, including super-regional banks, money center banks, and local commercial banks, competing on price, service, and location[21](index=21&type=chunk)[22](index=22&type=chunk) [Supervision and Regulation](index=6&type=section&id=Supervision%20and%20Regulation) The company and its bank subsidiary are extensively regulated by federal agencies, maintaining capital ratios exceeding all requirements - The Company and its subsidiaries are primarily supervised and regulated by the **Federal Reserve Board** and the **Office of the Comptroller of the Currency (OCC)**[24](index=24&type=chunk) Regulatory Capital Ratios as of December 31, 2022 | Ratio | Company (%) | Bank (%) | Minimum Requirement (%) | Well-Capitalized Requirement (%) | | :--- | :--- | :--- | :--- | :--- | | **CET1 Capital Ratio** | 18.93 | 18.43 | 4.5 | 6.5 | | **Tier 1 Capital Ratio** | 18.93 | 18.43 | 6.0 | 8.0 | | **Total Capital Ratio** | 20.18 | 19.68 | 8.0 | 10.0 | | **Tier 1 Leverage Ratio** | 10.39 | 10.12 | 4.0 | 5.0 | - As of December 31, 2022, the OCC categorized the Bank as "**well capitalized**" under the prompt corrective action framework[45](index=45&type=chunk) - FDIC deposit insurance expense was **$1.8 million** in both 2022 and 2021. The FDIC increased the initial base deposit insurance assessment rate by **2 basis points**, effective January 1, 2023[57](index=57&type=chunk)[58](index=58&type=chunk) [Human Capital Resources](index=16&type=section&id=Human%20Capital%20Resources) The company focuses on internal talent development, promoting diversity, and retaining employees through equity awards - As of December 31, 2022, the company had **818 employees**, equivalent to **754 full-time employees**[95](index=95&type=chunk) - In 2022, **140 employees** (approximately **17%**) were promoted internally, and employees participated in over **20,000 hours** of training[97](index=97&type=chunk)[98](index=98&type=chunk) - The workforce is composed of approximately **59% female** and **41% male** employees, with **42% ethnically diverse**[101](index=101&type=chunk) - The company has retained **93%** of employees who received officer equity awards since expanding the program in 2019 and 2020[105](index=105&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including lending, market conditions, compliance, cybersecurity, and climate change [Risks Related to Lending Activities](index=19&type=section&id=Risks%20Related%20to%20Our%20Lending%20Activities) The company is exposed to significant interest rate and credit risks, with potential for insufficient allowance for credit losses - The company is subject to **significant interest rate risk**. Rising interest rates, driven by inflation, positively impact interest income but may negatively affect the housing market, loan demand, and refinancing activity[112](index=112&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) - The company is exposed to **credit risk**, as adverse changes in economic conditions could impact borrowers' ability to repay loans and reduce the value of collateral[119](index=119&type=chunk) - The allowance for credit losses (ACLL) may be **insufficient** to cover expected losses if assumptions about the economy, borrower creditworthiness, or collateral values prove incorrect, potentially requiring material additions that would **decrease net income**[120](index=120&type=chunk) [Risks Related to Market Conditions](index=22&type=section&id=Risks%20Related%20to%20Market%20Conditions) Geographic loan concentration in New York and Florida, global instability, and financial institution soundness pose significant market risks - The company has a geographic concentration of loans in New York (**68.0%**) and Florida (**32.0%**), making it vulnerable to downturns in these local economies and real estate markets[130](index=130&type=chunk) - **Instability in global economic conditions**, geopolitical matters like the conflict in Ukraine, and financial market volatility could adversely affect results of operations[131](index=131&type=chunk)[132](index=132&type=chunk) - The **soundness of other financial institutions** poses a risk, as defaults or rumors about counterparties could lead to market-wide liquidity problems and potential losses[135](index=135&type=chunk) [Risks Related to Compliance and Regulation](index=24&type=section&id=Risks%20Related%20to%20Compliance%20and%20Regulation) Stringent regulatory capital rules, changes in tax laws, and dividend payment limitations pose significant compliance and regulatory risks - **Stringent regulatory capital rules** could slow growth, require raising additional capital, or result in restrictions on dividends and compensation if the company fails to comply[137](index=137&type=chunk)[138](index=138&type=chunk) - **Changes in tax laws**, such as the Inflation Reduction Act's **1%** excise tax on stock repurchases, may adversely affect financial results and capital return strategies[144](index=144&type=chunk)[145](index=145&type=chunk) - The company's ability to pay dividends to stockholders is dependent on receiving dividends from Trustco Bank, which is subject to **regulatory limitations**[148](index=148&type=chunk) [Risks Related to Cybersecurity, Third Parties, and Technology](index=27&type=section&id=Risks%20Related%20to%20Cybersecurity%2C%20Third%20Parties%2C%20and%20Technology) Reliance on third-party vendors, cyber-attacks, and unauthorized data disclosure present significant cybersecurity and operational risks - The company **relies heavily on third-party service providers** for critical systems, and any operational failure or security breach from these vendors could disrupt business[158](index=158&type=chunk) - **Cyber-attacks and security breaches** pose a significant risk, potentially leading to financial loss, reputational damage, litigation, and increased regulatory scrutiny[159](index=159&type=chunk)[164](index=164&type=chunk) - **Unauthorized disclosure of sensitive customer information**, whether through a breach of internal or third-party systems, could severely harm the business[161](index=161&type=chunk) [Other Risks](index=29&type=section&id=Other%20Risks) Climate change presents physical and transition risks, while new tax laws like the Inflation Reduction Act may impact capital allocation - **Climate change** presents physical risks (e.g., extreme weather damaging facilities and collateral) and transition risks (e.g., societal and regulatory responses impacting customers and business operations)[171](index=171&type=chunk)[172](index=172&type=chunk)[174](index=174&type=chunk) - The **Inflation Reduction Act of 2022** imposes a **1%** excise tax on stock repurchases, which may impact future capital allocation decisions[169](index=169&type=chunk) [Unresolved Staff Comments](index=30&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[175](index=175&type=chunk) [Properties](index=30&type=section&id=Item%202.%20Properties) The company's executive offices are located in a company-owned facility in Glenville, New York. It operates 143 banking offices, of which 24 are owned and 119 are leased, across its operating states - The Company operates **143 banking offices** in New York, New Jersey, Vermont, Massachusetts, and Florida[176](index=176&type=chunk) - As of December 31, 2022, **24 properties are owned** and **119 are leased** from others[176](index=176&type=chunk) [Legal Proceedings](index=30&type=section&id=Item%203.%20Legal%20Proceedings) According to management, there are no pending legal proceedings that would have a material adverse effect on the company's consolidated financial condition or shareholders' equity - In the opinion of management, there are **no pending proceedings** that, if determined adversely, would be **material** to TrustCo's consolidated shareholders' equity and financial condition[177](index=177&type=chunk) [Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[178](index=178&type=chunk) [Part II](index=32&type=section&id=PART%20II) This section details common equity, financial analysis, market risk, financial statements, and internal controls [Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) TrustCo's common stock trades on Nasdaq, with details on stock repurchase activity and dividend payment dependencies - TrustCo's common stock trades on The Nasdaq Stock Market under the symbol "TRST". As of February 23, 2023, there were approximately **7,566 shareholders of record**[181](index=181&type=chunk) Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of Publicly Announced Program | Maximum Shares Remaining Under Program | | :--- | :--- | :--- | :--- | :--- | | Oct 2022 | - | - | - | 32,786 | | Nov 2022 | - | - | - | 32,786 | | Dec 2022 | 32,786 | $38.17 | 32,786 | - | | **Total** | **32,786** | **$38.17** | **32,786** | **-** | - A share repurchase program for up to **200,000 shares**, authorized on March 9, 2022, was completed as of December 31, 2022[184](index=184&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The information required for Management's Discussion and Analysis (MD&A) is not presented directly in this section but is incorporated by reference from the company's Annual Report to Shareholders for the year ended December 31, 2022, filed as Exhibit 13 - The information required by this item is **incorporated by reference** from TrustCo's Annual Report to Shareholders for the year ended December 31, 2022 (Exhibit 13)[186](index=186&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The quantitative and qualitative disclosures regarding market risk are incorporated by reference from the company's Annual Report to Shareholders for the year ended December 31, 2022, which is filed as Exhibit 13 - The information required by this item is **incorporated by reference** from TrustCo's Annual Report to Shareholders for the year ended December 31, 2022 (Exhibit 13)[187](index=187&type=chunk) [Financial Statements and Supplementary Data](index=33&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The company's consolidated financial statements, the report from its independent auditor Crowe LLP, and supplementary financial data are incorporated by reference from the Annual Report to Shareholders for the year ended December 31, 2022, filed as Exhibit 13 - The consolidated financial statements and supplementary data are **incorporated by reference** from TrustCo's Annual Report to Shareholders for the year ended December 31, 2022 (Exhibit 13)[188](index=188&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=33&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[189](index=189&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2022. Management's Report on Internal Control over Financial Reporting is incorporated by reference. There were no material changes to internal controls during the fourth quarter of 2022 - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were **effective** as of December 31, 2022[191](index=191&type=chunk) - There were **no changes** in the Company's internal control over financial reporting during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, these controls[193](index=193&type=chunk) [Other Information](index=34&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[194](index=194&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=34&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[195](index=195&type=chunk) [Part III](index=34&type=section&id=PART%20III) Part III's governance, compensation, and ownership details are incorporated by reference from the Proxy Statement [Directors, Executive Officers and Corporate Governance](index=34&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Company's 2023 Proxy Statement - The information required by this item is **incorporated by reference** from the Company's Proxy Statement for its 2023 Annual Meeting of Shareholders[197](index=197&type=chunk) [Executive Compensation](index=34&type=section&id=Item%2011.%20Executive%20Compensation) Details on executive compensation are incorporated by reference from the Company's 2023 Proxy Statement - The information required by this item is **incorporated by reference** from the Company's Proxy Statement for its 2023 Annual Meeting of Shareholders[198](index=198&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=34&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management is incorporated by reference from the Company's 2023 Proxy Statement - The information required by this item is **incorporated by reference** from the Company's Proxy Statement for its 2023 Annual Meeting of Shareholders[199](index=199&type=chunk) [Certain Relationships, Related Transactions and Director Independence](index=34&type=section&id=Item%2013.%20Certain%20Relationships%2C%20Related%20Transactions%20and%20Director%20Independence) Disclosures regarding certain relationships, related-party transactions, and director independence are incorporated by reference from the Company's 2023 Proxy Statement - The information required by this item is **incorporated by reference** from the Company's Proxy Statement for its 2023 Annual Meeting of Shareholders[200](index=200&type=chunk) [Principal Accountant Fees and Services](index=34&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information concerning principal accountant fees and services is incorporated by reference from the Company's 2023 Proxy Statement - The information required by this item is **incorporated by reference** from the Company's Proxy Statement for its 2023 Annual Meeting of Shareholders[201](index=201&type=chunk) [Part IV](index=35&type=section&id=PART%20IV) This section details the financial statements and exhibits filed with the Form 10-K [Exhibits, Financial Statement Schedules](index=35&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed as part of the Form 10-K. It notes that all required financial statement schedules are included within the consolidated financial statements or notes thereto. Key exhibits include the company's articles of incorporation, bylaws, various compensation plans, and the Annual Report to Shareholders (Exhibit 13) - Lists the **consolidated financial statements** of TrustCo and its subsidiaries that are filed as part of the report[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - States that **all required financial statement schedules** have been included in the consolidated financial statements or related notes, making separate schedules not applicable[207](index=207&type=chunk) - Provides a **detailed index of exhibits** filed with the report, including management contracts, compensation plans, and certifications[209](index=209&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk) [Form 10-K Summary](index=39&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[178](index=178&type=chunk)