TRUSTCO BANK CORP N Y
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
TRST$57.30+1.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0001140361-24-025190
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001140361-24-036598
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 123 previous paragraphs and 139 current paragraphs.
65 unchanged; 52 reworded; 17 added; 6 removed; 0 previous and 5 current paragraphs rearranged.
Tables are not compared: 21 previous and 27 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (17)
Current report
Visa Exchange Offer
Current report
During the second quarter of 2024, Visa Inc. accepted the Company’s tender of its 6,528 shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock. As a result of the exchange, the Company marked its Visa Class C common stock to fair value and recorded a gain of $1.4 million based on the conversion privilege of the Visa Class C common stock and the closing price of Visa Class A common stock on June 28, 2024 of $262.47 per share. The Company’s Visa Class C shares are expected to continue to be marked to fair value on a recurring basis using the Visa Class A shares as evidence of orderly transactions between market participants for similar securities issued by Visa. The Company originally obtained the shares in 2008. The carrying value of the Visa B-2 shares is nominal as of June 30, 2024.
Current report
Taxable equivalent net interest income decreased by $16.7 million to $74.4 million in the first six-months of 2024 compared to the same period in 2023. The net interest spread was down 85 basis points to 2.05% in the first six-months of 2024 compared to the same period in 2023. Net interest margin decreased 62 basis points to 2.48% for the first six‑months of 2024 compared to the same period in 2023.
Current report
Allowance for credit losses on loans: As described in Note 5 of the consolidated financial statements, the Company enhanced its ACLL calculation. The enhancement was completed on the heels of our previously utilized forecast period and continued periods of minimal losses. The enhancement produces more granular results of expected loan loss, incorporates more extensive peer historical loss data, and allows for a more efficient process. This change did not result in a material impact to the Company’s financial statements.
Current report
As of June 30, 2024, the Company utilized the Baseline scenario model of Moody’s economic scenarios and considered the uncertainty associated with the assumptions in the baseline scenario, including continued actions taken by the Federal Reserve with regard to monetary policy and interest rates and the potential impact of those actions, the conflicts in the Middle East and Russia-Ukraine and the magnitude of the resulting market disruptions, and the potential impact of persistent high inflation on the economy. Outcomes in any or all of these factors could differ from the baseline scenario utilized, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk that may not be captured in the quantitative model.
Current report
The primary reason for the Company’s change in methodology relates to continued periods of low to minimal losses and to gain operational efficiencies in the allowance process. The Company did not change how quantitative losses are calculated, i.e. utilizing a discounted cash flow approach, rather we enhanced the discounted cash flow calculation to incorporate peer data and updated our forecast and reversion periods. Since the adoption of CECL, the Company has been estimating the quantitative reserves based on internal data and an 8-quarter forecast and immediate reversion. As described above, we are now utilizing peer data, given our continued low to minimal loss history, and using baseline scenario with a 4-quarter forecast and 4-quarter straight line reversion to produce reasonable and supportable results. We continue to use the regulatory interagency qualitative framework, however during the quarter ended June 30, 2024, we now utilize a weighted scorecard approach. The weighted scorecard approach considers each qualitative factor with respect to risks in our portfolio and the economic environment, weighting is assigned based on our evaluation and understanding of the underlying risks and economic conditions within each portfolio segment.
Current report
We enhanced our qualitative framework given the incorporation of peer data in our quantitative model and to gain operational efficiencies. This change did not result in a material impact to the Company’s financial statements.
Current report
Total noninterest income for the second quarter of 2024 was $5.7 million compared to $4.6 million for the same period in the prior year. The increase is primarily the result an unrealized gain of $1.4 million recorded on the Visa Class C Common stock exchange as previously discussed. Financial services income was also up $197 thousand in the second quarter of 2024 compared to the same period in the prior year, primarily as a result of a higher average market value of assets under management in the current year quarter versus the prior year quarter. This was partially offset by fees for services to customers decreasing $448 thousand over the same period in the prior year. The fair value of assets under management was $1.1 billion at June 30, 2024, $967 million at December 31, 2023, and $940 million at June 30, 2023.
Current report
For the six months ended June 30, 2024 total noninterest income was $10.5 million, up $1.2 million compared to the prior year period. The increase is also primarily the result the unrealized gain of $1.4 million recorded on the Visa Class C Common stock exchange as previously discussed.
Current report
Total noninterest expenses were $51.4 million for the six-months ended June 30, 2024, compared to $55.0 million for the six-months ended June 30, 2023. Significant changes included a decrease of $2.5 million in salaries and employee benefits primarily as a result less full time equivalents as well as lower employee benefits, and a $1.2 million decrease in other expenses, partially offset by an increase of $469 thousand in outsourced services.
Current report
Index
Current report
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Current report
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Current report
Management’s Discussion and Analysis
Current report
STATISTICAL DISCLOSURE
Current report
INTEREST RATES AND INTEREST DIFFERENTIAL
Removed paragraphs (6)
Previous report
On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each placed into receivership. Additionally, following the rapid withdrawal of deposits and large losses reported by Credit Suisse in Switzerland, Swiss Bank UBS Group AG acquired Credit Suisse in an emergency arrangement brokered by the Swiss government. Lastly, due to the destabilization of First Republic, the FDIC assisted in arranging a sale of First Republic to JPMorgan Chase on May 1, 2023. In response to the U.S. bank failures in the spring of 2023, the Federal Reserve established a Bank Term Funding Program (“BTFP”) to offer emergency loans of up to one year to eligible depository institutions pledging qualifying assets as collateral. Nevertheless, the closures of those banks and adverse developments affecting other banks over the course of 2023 have resulted in heightened levels of market activity and volatility. For instance, the share price of a number of regional banks continues to be adversely affected by continuing concerns regarding the liquidity of these banks and the stability of the banking system in general. The full impact of market volatility from the adverse developments in the banking industry, along with continued elevated interest rates, will depend on future developments, which are highly uncertain and difficult to predict. Our business and financial results may be impacted by a variety of other factors as well, such as an economic slowdown or recession.
Previous report
Allowance for credit losses on loans: The Company evaluated several external forecasts in choosing the forecast to element for the economic components of the allowance for credit losses on loans. The Company selected the stagflation forecast and there have been no changes in the economic modeling since its adoption on January 1, 2022.
Previous report
From December 31, 2023 to March 31, 2024 the actual performance was in line with the forecasted performance pertaining to key variables such as consumer price indices, and Gross Metro Product.
Previous report
Net recoveries for the three-month period ended March 31, 2024 were $42 thousand and $53 thousand for the prior year period.
Previous report
Total noninterest income for the first quarter of 2024 and 2023 was $4.8 million and $4.7 million, respectively. The increase over the same period in the prior year was primarily related to an increase of $118 thousand in interchange fees. Financial Services income was up $42 thousand to $1.8 million in the first quarter of 2024 as compared to the year-ago period, primarily as a result of higher market values of assets under management. The fair value of assets under management was $1.0 billion as of March 31, 2024, $967 million as of December 31, 2023 and $922 million as of March 31, 2023.
Previous report
TrustCo Bank Corp NY
Reworded paragraphs (52)
Previous wording
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month period ended March 31, 2024, with comparisons to the corresponding period in 2023, as applicable. Unless otherwise indicated, net interest income and net interest margin are presented in this discussion on a non-GAAP, taxable equivalent basis. The consolidated interim financial statements and related notes, as well as the Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 11, 2024 (the “2023 Form 10-K”), should also be read in conjunction with this review. Amounts in the prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period's presentation.
Current wording
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month and six month periods ended June 30, 2024, with comparisons to the corresponding period in 2023, as applicable. Unless otherwise indicated, net interest income and interest margin are presented in this discussion on a non-GAAP taxable equivalent basis. For the periods presented, there is no difference between these measures and GAAP net interest income and GAAP net interest margin. The consolidated interim financial statements and related notes, as well as the Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 11, 2024 (the “2023 Form 10-K”), should also be read in conjunction with this review. Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period’s presentation.
Previous wording
Following this management discussion and analysis is the table "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of TrustCo's average interest earning assets and interest bearing liabilities for the three month periods ended March 31, 2024 and 2023.
Current wording
Following this Management’s Discussion and Analysis are the “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential” tables, which give a detailed breakdown of TrustCo’s average interest earning assets and interest bearing liabilities for the three and six month periods ended June 30, 2024 and 2023.
Previous wording
During the first quarter of 2024, financial markets got off to a good start as the economy showed signs of improvement. For the first quarter of 2024, the S&P 500 Index was up 10.16%, Nasdaq was up 9.1%, and the Dow Jones Industrial Average was up 5.6% compared to the fourth quarter of 2023. The 10‑year Treasury bond averaged 4.16% during Q1 2024 compared to 4.45% in Q4 2023, a decrease of 29 basis points. The 2‑year Treasury bond average rate decreased 33 basis points to 4.48%, which slightly improved the inverted yield curve over the prior quarter. Consequently, the spread between the 10‑year and the 2-year Treasury bonds decreased from a -0.36% on average in Q4 2023 to -0.33% in Q1 2024. Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer term rates. Commencing in March 2022, the Federal Open Market Committee (“FOMC”) increased the target range for the Federal Funds rate seven times in 2022 and four times in 2023 by a total of 525 basis points, to a range of 5.25% to 5.50%, which is where it remains as of March 31, 2024. All of these increases were expressly made in response to inflationary pressures. Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, continue to be down as compared to the levels seen before the pandemic. Accordingly, changes in rates and spreads continue to be effected by global economic concerns.
Current wording
During the second quarter of 2024, financial markets got off to a slow start as investors were gauging whether the Federal Reserve might lower interest rates. For the second quarter of 2024, the S&P 500 Index was up 3.92%, Nasdaq was up 8.3%, and the Dow Jones Industrial Average was down 1.7% compared to the first quarter of 2024. The 10‑year Treasury bond averaged 4.45% during Q2 2024 compared to 4.16% in Q1 2024, a increase of 29 basis points. The 2‑year Treasury bond average rate increased 35 basis points to 4.83%, which slightly increased the inverted yield curve over the prior quarter. The spread between the 10‑year and the 2-year Treasury bonds increased from a -0.33% on average in Q1 2024 to -0.38% in Q2 2024. Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer-term rates. Commencing in March 2022, the Federal Open Market Committee (“FOMC”) increased the target range for the Federal Funds rate seven times in 2022 and four times in 2023 by a total of 525 basis points, to a range of 5.25% to 5.50%, which is where it remains as of June 30, 2024. All of these increases were expressly made in response to inflationary pressures. Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, continue to be down as compared to the levels seen before the pandemic. Additionally, changes in rates and spreads continue to be affected by global economic concerns.
Previous wording
The United States economy proved to be resilient 2023 and has also seen some improvements as we continue into 2024. Economic conditions can vary significantly over geographic areas, with strength concentrated in and around major population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors.
Current wording
The United States economy proved to be resilient in 2023 and has also seen improvements as we continue into 2024. Economic conditions can vary significantly over geographic areas, with strength concentrated in and around major population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors.
Previous wording
Additionally, in November 2023, the FDIC adopted a final rule to implement a special assessment on banks with total assets greater than $5.0 billion and uninsured deposits in excess of $5 billion, to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. The special assessment will be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods, which it estimates will result in total revenue of $16.3 billion. Because (i) the estimated loss pursuant to the systemic risk determination will be periodically adjusted and (ii) assessments collected may change due to corrective amendments to the amount of uninsured deposits reported for the December 31, 2022 reporting period, the FDIC has retained the ability to cease collection early, extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period to collect the difference between actual or estimated losses and the amounts collected, or impose a final shortfall special assessment on a one-time basis after the receiverships for SVB and Signature Bank terminate. The final rule will be effective April 1, 2024, with the first collection for the special assessment reflected on the invoice for the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024), with a payment date of June 28, 2024. There will be no additional cost to TrustCo as a result of uninsured deposits being under $5 billion.
Current wording
There were three significant bank failures in the first five months of 2023, primarily due to the failed banks’ lack of liquidity as depositors sought to withdraw their deposits. Due to rising interest rates, the failed banks were unable to sell investment securities held to meet liquidity needs without realizing substantial losses. As a result of the recent bank failures and in an effort to strengthen public confidence in the banking system and protect depositors, in November 2023, the FDIC adopted a final rule to implement a special assessment on banks with total assets greater than $5 billion and uninsured deposits in excess of $5 billion, to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. The special assessment is being collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods, which it estimates will result in total revenue of $16.3 billion. Because (i) the estimated loss pursuant to the systemic risk determination will be periodically adjusted and (ii) assessments collected may change due to corrective amendments to the amount of uninsured deposits reported for the December 31, 2022 reporting period, the FDIC has retained the ability to cease collection early, extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period to collect the difference between actual or estimated losses and the amounts collected, or impose a final shortfall special assessment on a one-time basis after the receiverships for SVB and Signature Bank terminate. The final rule became effective on April 1, 2024, and payment for the first collection for the special assessment was due on June 28, 2024. There will be no additional cost to TrustCo as a result of uninsured deposits being under $5 billion.
Previous wording
TrustCo recorded net income of $12.1 million, or $0.64 of diluted earnings per share, for the three months ended March 31, 2024, compared to net income of $17.7 million, or $0.93 of diluted earnings per share, in the same period in 2023. Return on average assets was 0.80% and 1.20%, respectively, for the three months ended March 31, 2024 and 2023. Return on average equity was 7.54% and 11.84%, respectively, for the three months ended March 31, 2024 and 2023.
Current wording
TrustCo recorded net income of $12.6 million, or $0.66 of diluted earnings per share, for the three months ended June 30, 2024, compared to net income of $16.4 million, or $0.86 of diluted earnings per share, in the same period in 2023. Return on average assets was 0.82% and 1.09%, respectively, for the three-months ended June 30, 2024 and 2023. Return on average equity was 7.76% and 10.61%, respectively, for the three-months ended June 30, 2024 and 2023.
Previous wording
TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, in the national economy, financial market conditions and the regulatory environment. Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results. Included in the 2023 Form 10-K is a description of the effect that continued elevated interest rates had on the results for the year 2023 compared to 2022. Many of the same market factors discussed in the 2023 Form 10-K, including instability in the financial services sector, heightened global economic concerns, and continued elevated interest rates continued to have a significant impact on results through the first quarter of 2024.
Current wording
TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, in the national economy, financial markets and the regulatory environment. Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results. Included in the 2023 Form 10-K is a description of the effect interest rates had on the results for the year 2023 compared to 2022. Many of the same market factors discussed in the 2023 Annual Report, including instability in the financial services sector and heightened global economic concerns, continued to have a significant impact on results through the second quarter of 2024. In addition, as we move forward for the remainder of 2024, the uncertainty surrounding the U.S. Presidential election and the potential of changes in regulatory and economic policy could give rise to interest rate volatility
Previous wording
TrustCo’s principal loan products are residential real estate loans. Most of TrustCo’s residential real estate loans carry a fixed rate of interest. As noted above, residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury. The 10‑year Treasury yield was down 29 basis points, on average, during the first quarter of 2024 compared to the fourth quarter of 2023, however, it was up 51 basis points as compared to the first quarter of 2023.
Current wording
TrustCo’s principal loan products are residential real estate loans. As noted above, residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury. The 10‑year Treasury yield increased 29 basis points, on average, during the second quarter of 2024 compared to the first quarter of 2024 and increased 85 basis points as compared to the second quarter of 2023.
Previous wording
For the first quarter of 2024, the net interest margin is 2.44%, down 77 basis points versus the prior year’s first quarter. The quarterly results reflect the following significant factors:
Current wording
For the second quarter of 2024, the net interest margin was 2.53%, down 45 basis points versus the prior year’s second quarter. The quarterly results reflect the following significant factors:
Previous wording
During the first quarter of 2024, the Company continued to focus on its strategy to expand its loan portfolio by offering competitive interest rates. Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors. Competition remains strong in the Company’s market areas.
Current wording
During the second quarter of 2024, the Company continued to focus on its strategy to expand its loan portfolio by offering competitive interest rates. Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors. Competition remains strong in the Company’s market areas.
Previous wording
The strategy on the funding side of the balance sheet was to offer competitive shorter term rates which allowed the Bank to maintain our existing deposits. This strategy drove growth at a relatively low cost that management believes should sustain TrustCo’s strong liquidity position and continue to allow us to cross sell products to new and existing relationships and take advantage of opportunities as they arise.
Current wording
The strategy on the funding side of the balance sheet was to offer competitive core shorter term CD rates. This strategy should sustain TrustCo’s strong liquidity position and continue to allow us to cross sell products to new and existing relationships and take advantage of opportunities as they arise.
Previous wording
Total average interest earning assets increased from $5.86 billion in the first quarter of 2023 to $5.99 billion in the same period of 2024 with an average yield of 3.99% in the first quarter of 2024 and 3.69% in the first quarter of 2023. The mix of assets invested in Federal Funds sold and other short-term investments and securities available for sale decreased while loans increased over the prior year period. Interest income on average earning assets increased $5.8 million in the first quarter of 2024 from the prior year period, on a tax equivalent basis. This increase was primarily driven by an increase in interest income on loans due to higher interest rates on loan originations over the last year, and also the higher interest rates on Federal Funds sold and other short-term investments and securities available for sale which resulted from the continued increases in the Federal Funds target rate throughout 2023.
Current wording
Total average interest earning assets increased from $5.91 billion in the second quarter of 2023 to $5.98 billion in the same period of 2024 with an average yield of 4.06% in the second quarter of 2024 and 3.80% in the second quarter of 2023. The mix of assets invested in Federal Funds sold and other short-term investments and securities available for sale decreased while loans increased over the prior year period. Interest income on average earning assets increased from $56.1 million in the second quarter of 2023 to $60.6 million in the second quarter of 2024, on a tax equivalent basis. This increase was primarily driven by an increase in interest income on loans due to higher interest rates on loan originations over the last year and variable rate loans repricing upwards, which resulted from the continued increases in the Federal Funds target rate throughout 2023.
Previous wording
The average balance of loans was $5.01 billion in the first quarter of 2024 up from $4.76 billion in the comparable period in 2023. The yield on loans also increased 25 basis points to 3.98%.
Current wording
The average balance of loans was $5.02 billion in the second quarter of 2024 and $4.84 billion in the comparable period in 2023. The yield on loans was up 23 basis points to 4.04%. Interest income on loans was $50.7 million in the second quarter of 2024 up $4.6 million from the same period in 2023.
Previous wording
Compared to the first quarter of 2023, the average balance of residential mortgage loans, commercial loans, installment loans, and home equity loans all increased. The average balance of residential mortgage loans was $4.36 billion in 2024 compared to $4.21 billion in 2023, an increase of 3.5%. The average yield on residential mortgage loans increased by 21 basis points to 3.71% in the first quarter of 2024 compared to 2023, primarily as a result of the higher interest rates on new originations compared to the existing portfolio yield.
Current wording
Compared to the second quarter of 2023, the average balance of residential mortgage loans, home equity lines of credit, and commercial loans, all increased, while the average balance of installment loans decreased. The average balance of residential mortgage loans was $4.36 billion in the second quarter of 2024 compared to $4.27 billion in 2023, an increase of 2.1%. The average yield on residential mortgage loans increased by 19 basis points to 3.75% in the second quarter of 2024 compared to 2023.
Previous wording
TrustCo actively markets the residential loan products within its market territories. Mortgage loan rates are affected by a number of factors including rates on Treasury securities, the Federal Funds target rate and rates set by competitors and secondary market participants. TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders. These unique aspects include low closing costs, fast turn-around time on loan approvals, and no escrow or mortgage insurance requirements for qualified borrowers. Assuming a continued rise in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.
Current wording
TrustCo actively markets the residential loan products within its market territories. The prolonged elevated level of higher interest rates has slowed lending across all markets we serve. As long term interest rates decrease we would expect the volume of lending to increase as rates become more attractive for existing mortgage customers. Mortgage loan rates are affected by a number of factors including rates on Treasury securities, the Federal Funds target rate and rates set by competitors and secondary market participants. TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders. These unique aspects include low closing costs, fast turn-around time on loan approvals, and no escrow or mortgage insurance requirements for qualified borrowers. Assuming a change in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.
Previous wording
Commercial loans, which consist primarily of loans secured by commercial real estate, increased $38.3 million to an average balance of $277.2 million in the first quarter of 2024 compared to the same period in the prior year. The average yield on this portfolio was up 22 basis points to 5.28% compared to the prior year period, primarily as a result of the continued elevated interest rates on new originations and variable rate loans repricing. The Company has sought to remain selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.
Current wording
Commercial loans, which consist primarily of loans secured by commercial real estate, increased $31.5 million to an average balance of $280.6 million in the second quarter of 2024 compared to the same period in the prior year. The average yield on this portfolio was up 8 basis points to 5.37% compared to the prior year period, primarily as a result of the continued elevated interest rates on new originations and variable rate loans repricing. The Company has sought to remain selective in underwriting commercial loans in pursuit of a favorable risk/reward balance.
Previous wording
The average yield on home equity credit lines increased 49 basis points to 6.22% during the first quarter of 2024 compared to the prior year period. The average balances of home equity lines increased 21.2% to $353.0 million in the first quarter of 2024 as compared to the prior year.
Current wording
The average yield on home equity credit lines increased 42 basis points to 6.42% during the second quarter of 2024 compared to the year earlier period. The average balances of home equity credit lines increased 20.1% to $364.2 million in the second quarter of 2024 as compared to the prior year.
Previous wording
The average balance of the securities available for sale portfolio for the first quarter of 2024 was $477.4 million compared to $516.2 million for the comparable period in 2023. The decrease in the balance reflects routine paydowns, calls and maturities, partially offset by new investment purchases. The average yield was 2.50% for the first quarter of 2024 compared to 2.26% for the first quarter of 2023. The increase in average yield is a result of higher yields on bonds purchased as well as lower rate bonds maturing since the prior year quarter. This portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), Small Business Administration participation certificates, corporate bonds and municipal bonds. These securities are recorded at fair value with any adjustment in fair value included in other comprehensive loss, net of tax.
Current wording
The average balance of the securities available for sale portfolio for the second quarter of 2024 was $437.6 million compared to $505.8 million for the comparable period in 2023. The decrease in the balance reflects routine paydowns, calls and maturities, partially offset by new investment purchases. The average yield was 2.58% for the second quarter of 2024 compared to 2.27% for the second quarter of 2023. The increase in average yield is a result of higher yields on bonds purchased as well as lower rate bonds maturing since the prior year quarter. This portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), Small Business Administration participation certificates, corporate bonds and municipal bonds. These securities are recorded at fair value with any adjustment in fair value included in other comprehensive loss, net of tax.
Previous wording
The net unrealized loss in the available for sale securities portfolio was $34.1 million as of March 31, 2024 compared to a net unrealized loss of $32.2 million as of December 31, 2023. The increase in the net unrealized losses in the portfolio is the result of the current interest rate environment.
Current wording
The net unrealized loss in the available for sale securities portfolio was $33.2 million as of June 30, 2024 compared to a net unrealized loss of $32.2 million as of December 31, 2023. The net unrealized losses in the portfolio are the result of changes in market interest rate levels.
Previous wording
The average balance of held to maturity securities was $6.3 million for the first quarter of 2024 compared to $7.5 million in the first quarter of 2023. The decrease in balances reflects routine paydowns. No new securities were added to this portfolio during the period. The average yield was 4.30% for the first quarter of 2024 compared to 4.14% for the year earlier period. TrustCo expects to hold the securities in this portfolio until they mature or are called.
Current wording
The average balance of held to maturity securities was $6.1 million for the second quarter of 2024 compared to $7.2 million in the second quarter of 2023. The decrease in balances reflects routine paydowns. No new securities were added to this portfolio during the period. The average yield was 4.28% for the second quarter of 2024 compared to 4.17% for the year earlier period. TrustCo expects to hold the securities in this portfolio until they mature or are called.
Previous wording
The net unrecognized loss in the held to maturity securities portfolio was $98 thousand as of March 31, 2024 compared to a net unrecognized loss of $62 thousand as of December 31, 2023. The decrease in the net unrecognized losses in the portfolio is the result of changes in market interest rate levels.
Current wording
The net unrecognized loss in the held to maturity securities portfolio was $102 thousand as of June 30, 2024 compared to a net unrealized loss of $62 thousand as of December 31, 2023. The decrease in the net unrealized losses in the portfolio is the result of changes in market interest rate levels.
Previous wording
As of March 31, 2024, this portfolio consisted solely of residential mortgage-backed securities. The balances for these securities are recorded at amortized cost.
Current wording
As of June 30, 2024, this portfolio consisted solely of agency issued mortgage-backed securities and collateralized mortgage obligations. The balances for these securities are recorded at amortized cost.
Previous wording
The 2024 first quarter average balance of Federal Funds sold and other short-term investments was $497.7 million, a $79.3 million decrease from the $576.9 million average for the same period in 2023. The yield was 5.45% for the first quarter of 2024 and 4.61% for the comparable period in 2023. Interest income from this portfolio increased $195 thousand from $6.6 million in 2023 to $6.8 million in 2024. While the average balances decreased year over year, the increase in the Federal Funds target rate through the end of 2023 resulted in an increase in interest income over the same period in the prior year.
Current wording
The 2024 second quarter average balance of Federal Funds sold and other short-term investments was $506.5 million, a $44.6 million decrease from the $551.1 million average for the same period in 2023. The yield was 5.48% for the second quarter of 2024 and 5.07% for the comparable period in 2023. Interest income from this portfolio decreased $76 thousand from $7.0 million in 2023 to $6.9 million in 2024. The increase in the yield was not enough to offset the decrease in average balances over the same period.
Previous wording
Total average interest bearing deposits (which includes interest bearing checking, money market accounts, savings and time deposits) increased $231.9 million to $4.58 billion for the first quarter of 2024 versus the first quarter in the prior year, and the average rate paid increased from 0.62% for 2023 to 1.34% for 2024. Total interest expense on these deposits increased $16.3 million to $23.0 million in the first quarter of 2024 compared to the year earlier period. From the first quarter of 2023 to the first quarter of 2024, interest bearing checking account average balances were down 12.6%, certificates of deposit average balances were up 62.8%, non‑interest demand average balances were down 11.1%, average savings balances decreased 20.4% and money market balances were down 9.3%. Overall, average balances are up from a year ago as we continue to encourage customers to retain their funds in the expanded product offerings of the Bank through aggressive marketing and product differentiation.
Current wording
Total average interest bearing deposit accounts (which includes interest bearing checking, money market accounts, savings and time deposits) increased $130.7 million to $4.55 billion for the second quarter of 2024 versus the second quarter in the prior year, and the average rate paid increased from 1.07% for 2023 to 2.00% for 2024. Total interest expense on these deposits increased from $11.8 million to $22.6 million in the second quarter of 2024 compared to the year earlier period. From the second quarter of 2023 to the second quarter of 2024, interest bearing demand account average balances were down 6.9%, certificates of deposit average balances were up 36.5%, non-interest demand average balances were down 6.8%, average savings balances decreased 15.3% and money market balances were down 14.5%. Overall, average balances are up from a year ago as we continue to encourage customers to retain their funds in the expanded product offerings of the Bank through aggressive marketing and product differentiation.
Previous wording
As of March 31, 2024, the maturity of total time deposits was as follows:
Current wording
As of June 30, 2024, the maturity of total time deposits is as follows:
Previous wording
As of March 31, 2024 and December 31, 2023, approximately $1.04 billion and $1.03 billion, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.
Current wording
As of June 30, 2024 and December 31, 2023, approximately $1.02 billion and $1.03 billion, respectively, of our deposit portfolio were uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.
Previous wording
Average short-term borrowings for the first quarter of 2024 were $93.3 million compared to $131.9 million in the same period in 2023. The decrease in the average balance from the prior year period is primarily a result of a shift of funds into time deposits. The average rate remained flat at 0.88% in both the first quarter of 2023 and 2024. The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.
Current wording
Average short-term borrowings for the second quarter were $93.7 million in 2024 compared to $124.1 million in 2023. The average rate decreased during this time period from 0.90% in 2023 to 0.89% in 2024. The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral. The customer account balances changed based on the needs of the underlying retail customers.
Previous wording
The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”) and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”) and has the ability to borrow utilizing securities and/or loans as collateral at either. The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a potential contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness.
Current wording
The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”) and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”) and has the ability to borrow utilizing securities and/or loans as collateral at either. The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a potential contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources, brokered deposits may be tested from time to time to ensure operational and market readiness. As of June 30, 2024 the Company also has borrowing capacity of $895.6 million available with the Federal Home Loan Bank of New York. The borrowings capacity is secured by the loans pledged by the Company. As of June 30, 2024 and December 31, 2023, the Company had no outstanding borrowings with the Federal Home Loan Bank of New York.
Previous wording
Taxable equivalent net interest income was down $10.4 million from $47.0 million in the first quarter of 2023 to $36.6 million in the first quarter of 2024. The net interest spread was down 106 basis points to 2.00% in the first quarter of 2024 compared to the same period in 2023. As previously noted, the net interest margin was down 77 basis points to 2.44% for the first quarter of 2024 compared to the same period in 2023. While yields on earning assets increased in Q1 2024 compared to Q1 2023, rates on interest-bearing liabilities with shorter maturities increased at a faster pace, causing margin compression. The Company has seen the erosion of margin begin to slow when comparing the decrease to prior quarters and management believes that we are nearing the bottom of this rate cycle. The Federal Reserve’s decision regarding whether to cut or hold rates in the upcoming meetings will have an effect on the Company’s ability to decrease deposit costs which should help margin in future quarters. During the first quarter of 2024, the Company has been able to lower the rates offered on our time deposits while continuing to retain and grow that product. This is expected bring down the cost of time deposits over time.
Current wording
Tax equivalent net interest income decreased by $6.3 million to $37.8 million in the second quarter of 2024 compared to the same period in 2023. The net interest spread was down 65 basis points to 2.09% in the second quarter of 2024 compared to the same period in 2023. As previously noted, the net interest margin was down 45 basis points to 2.53% for the second quarter of 2024 compared to the same period in 2023. The Bank experienced margin compression as some funding shifted from demand deposits and savings to higher rate time deposits in a rising interest rate market. Management expects some additional compression to occur in the near-term as time deposits reprice and the FRB has delayed the anticipated rate decreases. The Company has seen the erosion of margin begin to slow when comparing the decrease to prior quarters and management believes that we are nearing the bottom of this rate cycle. The Federal Reserve’s decision regarding whether to cut or hold rates in the upcoming meetings will have an effect on the Company’s ability to decrease deposit costs which should help margin in future quarters. During the second quarter of 2024, the Company has been able to lower the rates offered on our time deposits while continuing to retain and grow that product. This is expected bring down the cost of time deposits over time.”
Previous wording
Nonperforming loans and foreclosed real estate: Total NPLs were $18.3 million as of March 31, 2024, compared to $17.7 million at December 31, 2023, and $19.2 million as of March 31, 2023. There were no loans as of March 31, 2024 and 2023 and December 31, 2023 that were past due 90 days or more and still accruing interest.
Current wording
Nonperforming loans and foreclosed real estate: Total NPLs were $19.2 million at June 30, 2024, compared to $17.7 million at December 31, 2023 and $19.4 million at June 30, 2023. There were no loans as of June 30, 2024 and 2023 and December 31, 2023 that were past due 90 days or more and still accruing interest. The coverage ratio, or allowance for credit losses on loans to NPLs, was 259.4% as of June 30, 2024, compared to 275.0% as of December 31, 2023.
Previous wording
As of March 31, 2024, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $18.3 million as of March 31, 2024, $17.3 million were residential real estate loans, $846 thousand were commercial loans and mortgages and $149 thousand were installment loans, compared to $16.7 million, $850 thousand and $166 thousand, respectively at December 31, 2023.
Current wording
At June 30, 2024, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $19.2 million at June 30, 2024, $18.0 million were residential real estate loans, $1.1 million were commercial loans and mortgages and $153 thousand were installment loans, compared to $16.6 million, $850 thousand and $166 thousand, respectively, at December 31, 2023.
Previous wording
A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net recoveries were $78 thousand on residential real estate loans (including home equity lines of credit) for the first quarter of 2024 as well as the first quarter of 2023. Management believes that these loans have been appropriately written down where required.
Current wording
A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net recoveries were $57 thousand on residential real estate loans (including home equity lines of credit) for the second quarter of 2024 compared to net recoveries $161 thousand for the second quarter of 2023. Management believes that these loans have been appropriately written down where required.
Previous wording
The Company originates loans throughout its deposit franchise area. As of March 31, 2024, 65.0% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 35.0% were in Florida. Those figures compare to 65.1% and 34.9%, respectively at December 31, 2023.
Current wording
The Company originates loans throughout its branch franchise area. At June 30, 2024, 64.8% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 35.2% were in Florida. Those figures compare to 65.1% and 34.9%, respectively at December 31, 2023.
Previous wording
Economic conditions vary widely by geographic location. As a percentage of the total nonperforming loans as of March 31, 2024, 17.7% were to Florida borrowers, compared to 82.3% to borrowers in New York and surrounding areas. For the three months ended March 31, 2024, New York and surrounding areas experienced net recoveries of approximately $42 thousand, and Florida experienced no net recoveries.
Current wording
Economic conditions vary widely by geographic location. As a percentage of the total nonperforming loans as of June 30, 2024, 17.3% were to Florida borrowers, compared to 82.7% to borrowers in New York and surrounding areas. For the three months ended June 30, 2024, New York and surrounding areas experienced net recoveries of approximately $76 thousand and there were net charge-offs of $24 thousand in Florida for the second quarter of 2024.
Previous wording
Loans individually evaluated for impairment are non-accrual loans delinquent greater than 180 days, non-accrual commercial loans, as well as loans classified as loan modifications. There were $952 thousand of commercial mortgages and commercial loans classified as individually evaluated as of March 31, 2024 compared to $957 thousand at December 31, 2023. There were $23.8 million of individually evaluated residential loans as of March 31, 2024 compared to $23.6 million at December 31, 2023.
Current wording
Loans individually evaluated for impairment are non-accrual loans delinquent greater than 180 days, non-accrual commercial loans, as well as loans classified as loan modifications. There were $1.2 million of commercial mortgages and commercial loans classified as individually evaluated as of June 30, 2024 compared to $957 thousand classified as individually evaluated at December 31, 2023. There were $24.1 million of individually evaluated residential loans at June 30, 2024 compared to $23.6 million classified as individually evaluated at December 31, 2023.
Previous wording
In the first quarter of 2024, the Company recorded a provision for credit losses of $600 thousand, which is all related to the provision for credit losses on loans, as there was no provision for credit losses on unfunded commitments. The increase in the ACLL from during the first quarter of 2024 was primarily a result of loan growth and an increase in the expected life of loans.
Current wording
In the second quarter of 2024, the Company recorded a provision for credit losses of $500 thousand, which is all related to the provision for credit losses on loans, as there was no provision for credit losses on unfunded commitments. The increase in the ACLL from during the second quarter of 2024 was primarily a result of loan growth and the change in the economic forecast utilized. In the second quarter of 2023, the Company recorded a credit to provision for credit losses of $500 thousand, which was a result of a decrease in provision for credit losses on unfunded commitments as a result of a corresponding decrease in unfunded loans. There was no provision for credit losses on loans in the second quarter of 2023 due to the continued low levels of non-performing loans and lack of charge-offs experienced within the loan portfolio.
Previous wording
See Note 5 of the financial statements for additional discussion related to the process for determining the provision for credit losses.
Current wording
See Note 5 of the consolidated interim financial statements for additional discussion related the process for determining the provision for credit losses.
Previous wording
The allocation of the allowance for credit losses on loans as follows:
Current wording
The allocation of the allowance for credit losses on loans is as follows:
Previous wording
As of March 31, 2024, the allowance for credit losses on loans was $49.2 million, compared $48.6 million at December 31, 2023. The allowance represents 0.98% of the loan portfolio as of March 31, 2024 compared to 0.97% as December 31, 2023. The coverage ratio was 269.3% and 275.0% as of March 31, 2024 and December 31, 2023, respectively.
Current wording
At June 30, 2024, the allowance for credit losses on loans was $49.8 million, compared to $46.9 million at June 30, 2023 and $48.6 million at December 31, 2023. The allowance represents 0.99% of the loan portfolio at June 30, 2024, 0.97% at December 31, 2023, and 0.96% at June 30, 2023.
Previous wording
During the first quarter of 2024, there were no commercial loan charge-offs, $117 thousand of residential loan charge-offs, and $44 thousand of consumer loan charge-offs compared with no commercial or residential loan charge-offs and $48 thousand of consumer loan charge-offs in the first quarter of 2023. During the first quarter of 2024 there were no commercial loan recoveries and $203 thousand for residential mortgage and consumer loan recoveries, compared to no commercial loan recoveries and $101 thousand for residential mortgage and consumer loan recoveries in the first quarter of 2023.
Current wording
During the second quarter of 2024, there were no commercial loan charge-offs, $17 thousand of residential loan charge-offs, and $17 thousand of consumer loan charge-offs, compared with no commercial loan charge-offs, $22 thousand of gross residential mortgage charge-offs, and $69 thousand of consumer loan charge-offs in the second quarter of 2023. During the second quarter of 2024 there were no of commercial loan recoveries, $74 thousand of residential mortgage recoveries, and $12 thousand for consumer loan recoveries, compared to $129 thousand of commercial loan recoveries, $183 thousand of residential mortgage recoveries, and $8 thousand of consumer loan recoveries in the second quarter of 2023.
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Current report — wording carried from elsewhere
TrustCo recorded net income of $24.7 million, or $1.30 of diluted earnings per share, for the six‑months ended June 30, 2024, compared to net income of $34.1 million, or $1.79 of diluted earnings per share, in the same period in 2023. Return on average assets was 0.81% and 1.14%, respectively, for the six-months ended June 30, 2024 and 2023. Return on average equity was 7.65% and 11.22%, respectively, for the six-months ended June 30, 2024 and 2023.
Current report — wording carried from elsewhere
The primary factors accounting for the change in net income for the six months ended June 30, 2024 compared to the same period of the prior year were:
Current report — wording carried from elsewhere
The following table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase or decrease by 100 bp, 200 bp, 300 bp and 400 bp.
Current report — wording carried from elsewhere
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current report — wording carried from elsewhere
The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities. Included in the average balance of shareholders’ equity is the unrealized loss, net of tax, in the available for sale portfolio of $26.2 million in 2024 and $29.8 million in 2023. The subtotals contained in the following table are the arithmetic totals of the items contained in that category. Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.