TrustBank NY(TRST) - 2022 Q2 - Quarterly Report

Part I. Financial Information Consolidated Interim Financial Statements (Unaudited) TrustCo Bank Corp NY's unaudited consolidated financial statements detail increased net income, balance sheet growth, CECL adoption, and significant unrealized investment losses Consolidated Statements of Income Net income for Q2 2022 increased by 23.8% to $17.9 million, driven by higher net interest income and a credit for credit losses Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Change | Six Months 2022 | Six Months 2021 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $43,060 | $40,122 | +7.3% | $83,156 | $80,229 | +3.6% | | (Credit) Provision for credit losses | ($491) | $0 | N/A | ($691) | $350 | N/A | | Noninterest Income | $4,916 | $4,688 | +4.9% | $10,099 | $9,116 | +10.8% | | Noninterest Expenses | $25,005 | $25,440 | -1.7% | $47,770 | $50,775 | -5.9% | | Net Income | $17,871 | $14,433 | +23.8% | $34,960 | $28,516 | +22.6% | | Diluted EPS | $0.933 | $0.748 | +24.7% | $1.822 | $1.478 | +23.3% | Consolidated Statements of Comprehensive Income Comprehensive income for Q2 2022 was $10.8 million, significantly lower than net income due to a $9.2 million unrealized loss on available-for-sale securities Comprehensive Income Reconciliation (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $17,871 | $14,433 | $34,960 | $28,516 | | Other Comprehensive (Loss) Gain, net of tax | ($7,053) | $572 | ($21,569) | ($4,096) | | Net unrealized (loss) gain on securities, net of tax | ($6,829) | $622 | ($21,080) | ($3,839) | | Comprehensive Income | $10,818 | $15,005 | $13,391 | $24,420 | Consolidated Statements of Financial Condition Total assets increased slightly to $6.23 billion, driven by growth in net loans and deposits, while shareholders' equity decreased due to unrealized securities losses Financial Condition Highlights (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $6,226,791 | $6,196,546 | +0.5% | | Net Loans | $4,495,274 | $4,394,512 | +2.3% | | Securities Available for Sale | $502,415 | $407,713 | +23.2% | | Total Liabilities | $5,632,159 | $5,595,418 | +0.7% | | Total Deposits | $5,396,841 | $5,268,129 | +2.4% | | Total Shareholders' Equity | $594,632 | $601,128 | -1.1% | Notes to Consolidated Interim Financial Statements The notes detail significant accounting policies, including CECL adoption, a residential real estate-focused loan portfolio, substantial unrealized investment losses, and the company's well-capitalized status - The Company adopted the CECL standard on January 1, 2022, resulting in a $2.4 million increase in the allowance for credit losses on loans and a $2.3 million increase for unfunded commitments, leading to a $3.5 million net decrease in undivided profits[28][30] - Management elected the 'Stagflation' economic forecast scenario for its CECL calculation, considering current and prospective inflationary pressures and monetary policies[42][43][80] - The available-for-sale securities portfolio had gross unrealized losses of $28.6 million as of June 30, 2022, a substantial increase from $3.9 million at year-end 2021, primarily due to interest rate changes, with no credit losses recorded[62][63] - The loan portfolio is heavily concentrated in 1-to-4 family residential real estate, constituting $4.33 billion (95.4%) of the total $4.54 billion loan portfolio as of June 30, 2022[77] - As of June 30, 2022, both the Company and the Bank were categorized as 'well capitalized' under regulatory frameworks, with all capital ratios significantly exceeding minimum requirements[142][143][144] Management's Discussion and Analysis (MD&A) Management attributes strong Q2 2022 performance to higher net interest income, expanded net interest margin, loan portfolio growth, stable nonperforming loans, CECL adoption, and strong capital levels Q2 2022 vs Q2 2021 Performance Drivers (in millions/thousands) | Metric | Change | Reason | | :--- | :--- | :--- | | Net Income | +$3.5M | Increased net interest income and a credit for credit losses | | Net Interest Income | +$2.9M | Higher yield on earning assets and lower cost of interest-bearing liabilities | | Net Interest Margin | +13 bps to 2.83% | Benefit from rising Federal Funds rate on short-term investments | | Provision for Credit Losses | ($491K) credit | Improved unemployment and housing price forecasts under CECL model | | Noninterest Expense | -$435K | Decrease in salaries and benefits, partially offset by higher outsourced services costs | - The average loan portfolio grew by $196.2 million to $4.50 billion in Q2 2022 compared to Q2 2021, with residential mortgage loans increasing by 5.3%[186][187] - Nonperforming loans (NPLs) were stable at $18.7 million at June 30, 2022, compared to $18.8 million at December 31, 2021, with the allowance for credit losses on loans at 1.00% of the total loan portfolio[205][219] - The company's liquidity position remains strong, with average Federal Funds sold and other short-term investments at $1.1 billion, and the yield on this portfolio increased from 0.10% in Q2 2021 to 0.82% in Q2 2022 due to Fed rate hikes[195] - Total shareholders' equity was $594.6 million, and the company declared a dividend of $0.35 per share in Q2 2022, representing a payout ratio of 37.46%[231] Quantitative and Qualitative Disclosures About Market Risk The company's principal market risk is interest rate risk, with an internal model indicating asset sensitivity in rising rate scenarios and decreased capital fair value in falling rate scenarios Interest Rate Sensitivity Analysis (as of June 30, 2022) | Rate Shock Scenario | Estimated Fair Value of Capital to Fair Value of Assets | | :--- | :--- | | +400 BP | 28.90% | | +300 BP | 28.40% | | +200 BP | 29.10% | | +100 BP | 28.90% | | Current Rates (Base) | 27.60% | | -100 BP | 25.00% | | -200 BP | 21.50% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with 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 June 30, 2022[252] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting[254] Part II. Other Information Legal Proceedings The company reported no material legal proceedings during the period - None[255] Risk Factors The company updated its risk factors to include potential material adverse effects from global economic instability, geopolitical matters, high inflation, and Federal Reserve actions - The company highlights that instability in global economic conditions, geopolitical matters like the Russia-Ukraine conflict, and financial market volatility could materially and adversely affect its operations and financial condition[257] - Risks from high inflation and responsive actions by the Federal Reserve (e.g., rate hikes) are noted as potentially reducing demand for products, adversely affecting borrower creditworthiness, and lowering the value of investment securities[258] Share Repurchases During Q2 2022, the company repurchased 75,000 shares of common stock for approximately $2.4 million under an authorized program Share Repurchases for Q2 2022 | Period | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | April 2022 | 25,000 | $31.42 | | May 2022 | 50,000 | $31.49 | | June 2022 | 0 | - | | Total Q2 | 75,000 | $31.47 | - The repurchases were made under a program authorized on March 9, 2022, for up to 200,000 shares, with 106,886 shares yet to be purchased as of June 30, 2022[259] Exhibits This section lists the exhibits filed with the 10-Q report, including certifications by the CEO and CFO, a letter from the independent accounting firm, and XBRL data files