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TrustCo Announces Second Quarter 2015 Earnings; Core Net Income Up 5%

Executive Snapshot:

  • Continued strong financial results:
    • Core net income for second quarter 2015 compared to the same period in 2014:
      • Core net income up 4.9%;
      • Core diluted EPS up 3.7%;
    • GAAP earnings for the second quarter of 2015 compared to the same period in 2014:
      • Net income down 9.2%
      • Diluted EPS down 9.6%
      • Return on average assets (ROA) of 0.91%
      • Return on average equity (ROE) of 10.66%
      • Efficiency ratio of 54.71%
  • Asset quality improvement:
    • Asset quality measures continued to improve compared to both the second quarter of 2014 and for the first quarter of 2015
    • Nonperforming assets (NPAs) fell by $10.6 million when compared to June 30, 2014.
    • NPAs to total assets improved from 1.07% to 0.81% when compared to June 30, 2014.
    • Quarterly net chargeoffs at lowest level since the fourth quarter of 2008
  • Continued expansion of customer base:
    • Focus on capitalizing on opportunities presented by expanded branch network
    • Average deposits per branch grew $942 thousand from June 30, 2014 to June 30, 2015 on a same store basis
    • Average core deposits grew $93 million for the second quarter of 2015 compared to the second quarter of 2014
  • Loan portfolio reaches all-time high:
    • Average loans were up $252 million for the second quarter of 2015 compared to second quarter of 2014
    • At $3.24 billion at June 30, 2015, loans reached an all-time historic high

Note: See non-GAAP financial measures reconciliation on pages 14-15 for information on core income and earnings per share

TrustCo Announces Second Quarter 2015 Earnings;
Core Net Income Up 5%

GLENVILLE, N.Y., July 21, 2015 (GLOBE NEWSWIRE) --

TrustCo Bank Corp NY (TrustCo) (Nasdaq:TRST) today announced that second quarter of 2015 core net income rose 4.9% to $10.7 million compared to $10.2 million for the second quarter of 2014. Second quarter 2014 results included a gain of $2.4 million on the previously disclosed sale of owned real estate that added $1.6 million to reported after-tax earnings. On a GAAP basis, second quarter 2014 net income was $11.8 million compared to $10.7 million in 2015.

Robert J. McCormick, President and Chief Executive Officer noted, “Our core results for the second quarter of 2015 build off of the solid results of the first quarter. In addition to core net income growth, we continued to add customer relationships which ultimately positions our business well for the future. Our highly liquid balance sheet continues to allow us to fund our loan growth without having to overpay for deposits. We look forward to the second half of 2015 with optimism. We will continue taking advantage of opportunities as they are presented.”

TrustCo saw continued strong loan growth in the second quarter of 2015. Loan portfolio expansion was funded by utilization of a portion of the Bank’s large cash position. Growth in core deposits was used to offset declines in higher cost certificates of deposit and cash management accounts, which are significantly more costly than core deposits. The continued shift toward loans helped offset the margin impact from continued comparatively low yields on cash and investments. TrustCo’s strong liquidity position continues to allow the Company to take advantage of opportunities when interest rate conditions change.

Mr. McCormick also noted, “We are encouraged by the continued economic improvements in our market areas. We are pleased with the continued improvement in our asset quality during both the second quarter and over the last year. Our long-term focus on traditional lending criteria and conservative balance sheet management has enabled us to maintain strong liquidity and capital and report continued profit improvements. As a result, we have been able to focus on conducting business, which has put us in a position to take advantage of changes in market and competitive conditions.”

For the second quarter of 2015, return on average assets and return on average equity were 0.91% and 10.66%, respectively, compared to 1.03% and 12.50% for the second quarter of 2014, all on a reported GAAP basis. Reported GAAP diluted earnings per share were $0.113 for the second quarter of 2015, compared to $0.125 for the second quarter of 2014. Higher levels of assets and shareholders’ equity as well as the $2.4 million gain noted earlier contributed to the decline in return on average assets and equity. Core diluted net income per share was $0.112 for the second quarter of 2015 compared to $0.108 for the second quarter of 2014.The reconciliation between core and GAAP earnings is shown in the table at the back of this release.

For the first six months of 2015, core diluted net income per share was $0.225, compared to $0.213 for the first six months of 2014. On a GAAP basis, diluted earnings per share were $0.225, compared to $0.241 over the same time periods. GAAP return on average assets and equity were 0.92% and 10.78% for the first six months of 2015, compared to 1.01% and 12.30% for the first six months of 2014.

Average loans were up $252.5 million or 8.5% in the second quarter of 2015, over the same period in 2014. Average deposits were up $138.8 million or 3.5% for the second quarter of 2015 over the same period a year earlier. Most of the increase in deposits came from core deposit accounts. Average core deposits increased $92.8 million from the second quarter of 2014 to the second quarter of 2015. Core deposits typically represent longer term customer relationships and are generally lower cost than time deposits. Mr. McCormick noted that, “The year-over-year growth of our loans and core deposit base reflect the long term strategic focus of the Company.

"While some banks have backed away from branches, a customer friendly branch franchise continues to be the key to our long term plans. We opened one new office during the second quarter, in Orlando, Florida and now have a 50 branch network covering Central Florida. We continue to make significant progress expanding loans and deposits throughout our entire branch network. We expect that trend to continue as the newer branches continue to mature.

"At June 30, 2015, our average branch size was $28.3 million. On a same store basis, our average deposits per branch grew by $942 thousand from June 30, 2014 to June 30, 2015. We have always designed our branches to be smaller and more cost effective than those built by many of our competitors. We use open floor plans that help maximize the value of our branches. We remain mindful that fully achieving our goals for newer branches will take time and continued work. We believe success in growing customer relationships provides basic building blocks that will help drive profit growth for the coming years.”

Asset quality and the allowance for loan losses coverage of nonperforming loans (NPLs) improved from both June 30, 2014 and March 31, 2015 to June 30, 2015. NPLs declined to $32.5 million at June 30, 2015, compared to $40.9 million at June 30, 2014 and $33.5 million at March 31, 2015. NPLs were equal to 1.00% of total loans at June 30, 2015, compared to 1.36% a year earlier and 1.05% at March 31, 2015. The coverage ratio, or allowance for loan losses to NPLs, was 140.3% at June 30, 2015, compared to 137.2% at March 31, 2015 and 114.7% at June 30, 2014. Nonperforming assets (NPAs) declined to $38.6 million from $40.4 million at March 31, 2015 and $49.2 million at June 30, 2014. Overall, virtually every asset quality indicator improved during the second quarter of 2015 relative to the first quarter of 2015 and the second quarter of 2014. The ratio of loan loss allowance to total loans was 1.41% as of June 30, 2015, compared to 1.44% at March 31, 2015 and to 1.56% at June 30, 2014 and reflects both the improvement in asset quality and economic conditions in our lending areas. The allowance for loan losses was $45.6 million at June 30, 2015 compared to $45.9 million at March 31, 2015 and $46.9 million at June 30, 2014.

The net interest margin for the second quarter of 2015 was 3.07% compared to 3.08% in the first quarter of 2015 and 3.16% in the second quarter of 2014.

At June 30, 2015 the tangible equity ratio was 8.48% compared to 8.44% at March 31, 2015 and 8.38% at June 30, 2014. Tangible book value per share at June 30, 2015 was $4.23 compared to $4.06 a year earlier.

Trustco Bank entered into an agreement with its primary regulator, the Office of the Comptroller of the Currency (OCC), on July 21, 2015. The agreement calls for the Bank to take various actions in areas such as compliance, corporate governance, audit, capital planning including dividends, and strategic planning, among others. The agreement followed the completion of the OCC’s regularly scheduled exam of the Bank. Since the completion of the examination, the Bank has been working to address the issues raised. The Bank’s board of directors and management are committed to taking the necessary actions to fully address the provisions of the agreement and believe they have made significant progress towards that goal. Implementing the necessary action plans is expected to add annualized expenses of between $2.5 and $5.0 million.

TrustCo Bank Corp NY is a $4.7 billion savings and loan holding company and through its subsidiary, Trustco Bank, operated 146 offices in New York, New Jersey, Vermont, Massachusetts, and Florida at June 30, 2015.

In addition, the Bank’s Financial Services Department offers a full range of investment services, retirement planning and trust and estate administration services. The common shares of TrustCo are traded on the NASDAQ Global Select Market under the symbol TRST.

A conference call to discuss second quarter 2015 results will be held at 9:00 a.m. Eastern Time on July 22, 2015. Those wishing to participate in the call may dial toll-free 1-888-339-0764. International callers must dial 1-412-902-4195. Please ask to be joined into the TrustCo Bank Corp NY / TRST call. A replay of the call will be available for thirty days by dialing 1-877-344-7529 (1-412-317-0088 for international callers), Conference Number 10069090. The call will also be audio webcast at: http://services.choruscall.com/links/trst150722.html, and will be available for one year.

Note: See non-GAAP financial measures reconciliation on pages 14-15 for information on core income and earnings per share

Safe Harbor Statement
All statements in this news release that are not historical are forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our expectations for our performance during 2015 and for the growth of loans and deposits throughout our branch network and our ability to capitalize on economic changes in the areas in which we operate. Such forward-looking statements are subject to factors that could cause actual results to differ materially for TrustCo from those discussed. TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect TrustCo’s actual results and could cause TrustCo’s actual financial performance to differ materially from that expressed in any forward-looking statement: our ability to continue to originate a significant volume of one-to-four family mortgage loans in our market areas; our ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income; our ability to comply with the supervisory agreement entered into with Trustco Bank’s regulator and potential regulatory actions if we fail to comply; restrictions or conditions imposed by our regulators on our operations that may make it more difficult for us to achieve our goals; the future earnings and capital levels of Trustco Bank and the continued ability of Trustco Bank under regulatory rules and the supervisory agreement to distribute capital to TrustCo, which could affect our ability to pay dividends; results of examinations of Trustco Bank and TrustCo by our respective regulators; our ability to make accurate assumptions and judgments regarding the credit risks associated with lending and investing activities; the effect of changes in financial services laws and regulations and the impact of other governmental initiatives affecting the financial services industry; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board, inflation, interest rates, market and monetary fluctuations; the perceived overall value of our products and services by users, including in comparison to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for our products and services; real estate and collateral values; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB or PCAOB; changes in local market areas and general business and economic trends, as well as changes in consumer spending and saving habits; our success at managing the risks involved in the foregoing and managing our business; and other risks and uncertainties under the heading “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2014, as amended, and, if any, in our subsequent quarterly reports on Form 10-Q or other securities filings.

TRUSTCO BANK CORP NY
GLENVILLE, NY
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
06/30/1503/31/1506/30/14
Summary of operations
Net interest income (TE)$ 35,690 35,185 35,513
Provision for loan losses 800 800 1,500
Net securities transactions - 249 -
Noninterest income, excluding net securities transactions 4,454 4,374 4,505
Noninterest expense 22,131 21,857 19,437
Net income 10,727 10,715 11,808
Per common share
Net income per share:
- Basic$ 0.113 0.113 0.125
- Diluted 0.113 0.113 0.125
Cash dividends 0.066 0.066 0.066
Tangible Book value at period end 4.23 4.21 4.06
Market price at period end 7.03 6.88 6.68
At period end
Full time equivalent employees 760 747 747
Full service banking offices 146 145 141
Performance ratios
Return on average assets 0.91% 0.93 1.03
Return on average equity 10.66 10.91 12.50
Efficiency (1) 54.71 54.18 53.00
Net interest spread (TE) 3.01 3.02 3.11
Net interest margin (TE) 3.07 3.08 3.16
Dividend payout ratio 58.15 58.12 52.62
Capital ratio at period end
Consolidated tangible equity to tangible assets (2) 8.48 8.44 8.38
Asset quality analysis at period end
Nonperforming loans to total loans 1.00 1.05 1.36
Nonperforming assets to total assets 0.81 0.85 1.07
Allowance for loan losses to total loans 1.41 1.44 1.56
Coverage ratio (3) 1.4x 1.4 1.1
(1) Calculated as noninterest expense (excluding ORE income/expense) divided by taxable equivalent net interest income plus noninterest income (excluding net securities transactions, the net gain on sale of building, and the net sale of nonperforming loans).
(2) The tangible equity ratio excludes $553 of intangibles from both equity and assets.
(3) Calculated as allowance for loan losses divided by total nonperforming loans.
TE = Taxable equivalent.
FINANCIAL HIGHLIGHTS, Continued
(dollars in thousands, except per share data)
(Unaudited)
Six Months Ended
06/30/1506/30/14
Summary of operations
Net interest income (TE)$ 70,875 70,214
Provision for loan losses 1,600 3,000
Net securities transactions 249 6
Noninterest income 8,828 10,258
Noninterest expense 43,988 40,238
Net income 21,442 22,819
Per common share
Net income per share:
- Basic$ 0.226 0.241
- Diluted 0.225 0.241
Cash dividends 0.131 0.131
Tangible Book value at period end 4.23 4.06
Market price at period end 7.03 6.68
Performance ratios
Return on average assets 0.92% 1.01
Return on average equity 10.78 12.30
Efficiency (1) 54.45 52.15
Net interest spread (TE) 3.02 3.09
Net interest margin (TE) 3.08 3.15
Dividend payout ratio 58.14 54.42
(1) Calculated as noninterest expense (excluding ORE income/expense) divided by taxable equivalent net interest income plus noninterest income (excluding net securities transactions).
TE = Taxable equivalent.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
6/30/20153/31/201512/31/20149/30/20146/30/2014
Interest and dividend income:
Interest and fees on loans$ 35,343 34,983 35,051 34,421 33,614
Interest and dividends on securities available for sale:
U. S. government sponsored enterprises 366 212 233 297 381
State and political subdivisions 23 25 29 38 44
Mortgage-backed securities and collateralized mortgage obligations-residential 2,276 2,393 2,733 3,040 3,299
Corporate bonds - 1 2 2 2
Small Business Administration-guaranteed participation securities 503 522 524 535 539
Mortgage-backed securities and collateralized mortgage obligations-commercial 38 37 37 38 38
Other securities 4 4 4 4 4
Total interest and dividends on securities available for sale 3,210 3,194 3,562 3,954 4,307
Interest on held to maturity securities:
Mortgage-backed securities and collateralized mortgage obligations-residential 480 478 512 545 577
Corporate bonds 154 154 154 153 154
Total interest on held to maturity securities 634 632 666 698 731
Federal Reserve Bank and Federal Home Loan Bank stock 118 116 123 127 128
Interest on federal funds sold and other short-term investments 423 400 363 374 376
Total interest income 39,728 39,325 39,765 39,574 39,156
Interest expense:
Interest on deposits:
Interest-bearing checking 111 105 98 94 89
Savings 599 658 663 644 592
Money market deposit accounts 547 617 634 648 618
Time deposits 2,500 2,434 2,366 2,213 2,035
Interest on short-term borrowings 300 346 335 327 342
Total interest expense 4,057 4,160 4,096 3,926 3,676
Net interest income 35,671 35,165 35,669 35,648 35,480
Provision for loan losses 800 800 1,000 1,100 1,500
Net interest income after provision for loan losses 34,871 34,365 34,669 34,548 33,980
Noninterest income:
Trustco Financial Services income 1,478 1,653 1,451 1,471 1,405
Fees for services to customers 2,691 2,524 2,753 2,838 2,732
Net gain on securities transactions - 249 335 376 -
Other 285 197 213 205 368
Total noninterest income 4,454 4,623 4,752 4,890 4,505
Noninterest expenses:
Salaries and employee benefits 8,164 8,481 9,003 8,272 8,012
Net occupancy expense 3,878 4,108 3,869 4,013 4,110
Equipment expense 1,803 1,942 1,919 1,725 1,823
Professional services 2,066 1,507 1,536 1,547 1,438
Outsourced services 1,425 1,425 1,225 1,375 1,425
Advertising expense 733 600 602 629 657
FDIC and other insurance 1,017 1,065 949 1,054 1,000
Other real estate expense (income), net 201 424 841 1,001 (1,688)
Other 2,844 2,305 2,296 2,576 2,660
Total noninterest expenses 22,131 21,857 22,240 22,192 19,437
Income before taxes 17,194 17,131 17,181 17,246 19,048
Income taxes 6,467 6,416 6,521 6,532 7,240
Net income$ 10,727 10,715 10,660 10,714 11,808
Net income per common share:
- Basic$ 0.113 0.113 0.113 0.113 0.125
- Diluted 0.113 0.113 0.112 0.113 0.125
Average basic shares (in thousands) 95,056 94,947 94,681 94,628 94,559
Average diluted shares (in thousands) 95,190 95,074 94,813 94,752 94,675
Note: Taxable equivalent net interest income$ 35,690 35,185 35,693 35,676 35,513
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
Six Months Ended
6/30/20156/30/2014
Interest and dividend income:
Interest and fees on loans$ 70,326 66,488
Interest and dividends on securities available for sale:
U. S. government sponsored enterprises 578 887
State and political subdivisions 48 112
Mortgage-backed securities and collateralized mortgage obligations-residential 4,669 6,377
Corporate bonds 1 61
Small Business Administration-guaranteed participation securities 1,025 1,095
Mortgage-backed securities and collateralized mortgage obligations-commercial 75 76
Other securities 8 8
Total interest and dividends on securities available for sale 6,404 8,616
Interest on held to maturity securities:
Mortgage-backed securities-residential 958 1,202
Corporate bonds 308 308
Total interest on held to maturity securities 1,266 1,510
Federal Reserve Bank and Federal Home Loan Bank stock 234 261
Interest on federal funds sold and other short-term investments 823 727
Total interest income 79,053 77,602
Interest expense:
Interest on deposits:
Interest-bearing checking 216 173
Savings 1,257 1,355
Money market deposit accounts 1,164 1,217
Time deposits 4,934 3,986
Interest on short-term borrowings 646 735
Total interest expense 8,217 7,466
Net interest income 70,836 70,136
Provision for loan losses 1,600 3,000
Net interest income after provision for loan losses 69,236 67,136
Noninterest income:
Trust department income 3,131 2,915
Fees for services to customers 5,215 5,253
Net gain on securities transactions 249 6
Other 482 2,090
Total noninterest income 9,077 10,264
Noninterest expenses:
Salaries and employee benefits 16,645 15,604
Net occupancy expense 7,986 8,369
Equipment expense 3,745 3,575
Professional services 3,573 2,724
Outsourced services 2,850 2,750
Advertising expense 1,333 1,256
FDIC and other insurance 2,082 1,904
Other real estate (income) expense, net 625 (833)
Other 5,149 4,889
Total noninterest expenses 43,988 40,238
Income before taxes 34,325 37,162
Income taxes 12,883 14,343
Net income$ 21,442 22,819
Net income per Common Share:
- Basic$ 0.226 0.241
- Diluted 0.225 0.241
Average basic shares (thousands) 95,002 94,536
Average diluted shares (thousands) 95,132 94,658
Note: Taxable equivalent net interest income$ 70,875 70,214
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)
(Unaudited)
6/30/20153/31/201512/31/20149/30/20146/30/2014
ASSETS:
Cash and due from banks$ 37,574 44,853 43,505 43,724 48,034
Federal funds sold and other short term investments 641,011 705,273 627,943 586,931 573,514
Total cash and cash equivalents 678,585 750,126 671,448 630,655 621,548
Securities available for sale:
U. S. government sponsored enterprises 152,082 108,248 77,800 83,087 103,340
States and political subdivisions 1,969 1,974 2,271 2,769 3,921
Mortgage-backed securities and collateralized mortgage obligations-residential 429,205 445,273 483,560 523,779 589,517
Corporate bonds - 1,500 1,500 1,401 1,402
Small Business Administration-guaranteed participation securities 95,323 98,668 100,496 100,491 102,367
Mortgage-backed securities and collateralized mortgage obligations-commercial 10,399 10,503 10,447 10,417 10,544
Other securities 685 685 685 679 679
Total securities available for sale 689,663 666,851 676,759 722,623 811,770
Held to maturity securities:
Mortgage-backed securities and collateralized mortgage obligations-residential 53,576 57,296 60,986 64,223 67,974
Corporate bonds 9,967 9,964 9,960 9,956 9,952
Total held to maturity securities 63,543 67,260 70,946 74,179 77,926
Federal Reserve Bank and Federal Home Loan Bank stock 9,480 9,228 9,228 9,228 10,951
Loans:
Commercial 209,399 212,145 223,382 219,825 222,655
Residential mortgage loans 2,669,929 2,620,925 2,575,222 2,510,151 2,437,500
Home equity line of credit 354,946 352,552 352,134 346,496 339,897
Installment loans 8,674 8,003 7,594 6,557 6,098
Loans, net of deferred fees and costs 3,242,948 3,193,625 3,158,332 3,083,029 3,006,150
Less:
Allowance for loan losses 45,571 45,944 46,327 46,512 46,935
Net loans 3,197,377 3,147,681 3,112,005 3,036,517 2,959,215
Bank premises and equipment, net 38,100 38,812 38,565 37,455 36,658
Other assets 64,589 60,698 65,488 71,609 71,061
Total assets$ 4,741,337 4,740,656 4,644,439 4,582,266 4,589,129
LIABILITIES:
Deposits:
Demand$ 355,783 347,315 331,425 327,527 324,277
Interest-bearing checking 713,001 696,137 682,210 646,862 643,473
Savings accounts 1,250,154 1,237,115 1,216,831 1,215,087 1,233,347
Money market deposit accounts 633,239 640,368 638,542 655,646 651,367
Time deposits 1,185,264 1,196,233 1,163,233 1,139,919 1,142,723
Total deposits 4,137,441 4,117,168 4,032,241 3,985,041 3,995,187
Short-term borrowings 170,750 194,738 189,116 179,957 181,516
Accrued expenses and other liabilities 30,687 28,274 29,638 27,781 27,409
Total liabilities 4,338,878 4,340,180 4,250,995 4,192,779 4,204,112
SHAREHOLDERS' EQUITY:
Capital stock 98,964 98,964 98,945 98,942 98,927
Surplus 171,988 172,237 172,353 172,598 172,769
Undivided profits 175,721 171,232 166,745 162,326 157,832
Accumulated other comprehensive loss, net of tax (5,927) (2,687) (4,509) (3,508) (2,611)
Treasury stock at cost (38,287) (39,270) (40,090) (40,871) (41,900)
Total shareholders' equity 402,459 400,476 393,444 389,487 385,017
Total liabilities and shareholders' equity$ 4,741,337 4,740,656 4,644,439 4,582,266 4,589,129
Outstanding shares (in thousands) 95,056 94,956 94,857 94,785 94,665

NONPERFORMING ASSETS
(dollars in thousands)
(Unaudited)
Nonperforming Assets
06/30/1503/31/1512/31/1409/30/1406/30/14
New York and other states*
Loans in nonaccrual status:
Commercial$ 3,263 2,489 3,835 4,226 5,132
Real estate mortgage - 1 to 4 family 27,366 28,215 27,221 29,736 31,433
Installment 79 77 77 95 87
Total non-accrual loans 30,708 30,781 31,133 34,057 36,652
Other nonperforming real estate mortgages - 1 to 4 family 74 75 125 155 159
Total nonperforming loans 30,782 30,856 31,258 34,212 36,811
Other real estate owned 5,833 6,288 5,533 5,238 3,930
Total nonperforming assets$ 36,615 37,144 36,791 39,450 40,741
Florida
Loans in nonaccrual status:
Commercial$ - - - 517 517
Real estate mortgage - 1 to 4 family 1,678 2,608 2,740 2,395 3,578
Installment 10 20 13 1 1
Total non-accrual loans 1,688 2,628 2,753 2,913 4,096
Other nonperforming real estate mortgages - 1 to 4 family - - - - -
Total nonperforming loans 1,688 2,628 2,753 2,913 4,096
Other real estate owned 275 670 908 1,188 4,365
Total nonperforming assets$ 1,963 3,298 3,661 4,101 8,461
Total
Loans in nonaccrual status:
Commercial$ 3,263 2,489 3,835 4,743 5,649
Real estate mortgage - 1 to 4 family 29,044 30,823 29,961 32,131 35,011
Installment 89 97 90 96 88
Total non-accrual loans 32,396 33,409 33,886 36,970 40,748
Other nonperforming real estate mortgages - 1 to 4 family 74 75 125 155 159
Total nonperforming loans 32,470 33,484 34,011 37,125 40,907
Other real estate owned 6,108 6,958 6,441 6,426 8,295
Total nonperforming assets$ 38,578 40,442 40,452 43,551 49,202
Quarterly Net Chargeoffs (Recoveries)
06/30/1503/31/1512/31/1409/30/1406/30/14
New York and other states*
Commercial$ 50 34 (16) 124 13
Real estate mortgage - 1 to 4 family 933 1,004 1,591 1,105 1,496
Installment 24 37 48 57 24
Total net chargeoffs$ 1,007 1,075 1,623 1,286 1,533
Florida
Commercial$ (1) (1) (476) (1) (2)
Real estate mortgage - 1 to 4 family 167 109 37 242 59
Installment - - 1 (4) 10
Total net chargeoffs$ 166 108 (438) 237 67
Total
Commercial$ 49 33 (492) 123 11
Real estate mortgage - 1 to 4 family 1,100 1,113 1,628 1,347 1,555
Installment 24 37 49 53 34
Total net chargeoffs$ 1,173 1,183 1,185 1,523 1,600
Asset Quality Ratios
06/30/1503/31/1512/31/1409/30/1406/30/14
Total nonperforming loans(1)$ 32,470 33,484 34,011 37,125 40,907
Total nonperforming assets(1) 38,578 40,442 40,452 43,551 49,202
Total net chargeoffs(2) 1,173 1,183 1,185 2,179 1,600
Allowance for loan losses(1) 45,571 45,944 46,327 46,512 46,935
Nonperforming loans to total loans 1.00% 1.05% 1.08% 1.20% 1.36%
Nonperforming assets to total assets 0.81% 0.85% 0.87% 0.95% 1.07%
Allowance for loan losses to total loans 1.41% 1.44% 1.47% 1.51% 1.56%
Coverage ratio(1) 140.3% 137.2% 136.2% 125.3% 114.7%
Annualized net chargeoffs to average loans(2) 0.15% 0.15% 0.15% 0.29% 0.22%
Allowance for loan losses to annualized net chargeoffs(2) 9.7x 9.6x 9.8x 5.3x 7.3x
* Includes New York, New Jersey, Vermont and Massachusetts.
(1) At period-end
(2) For the period ended

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY-
INTEREST RATES AND INTEREST DIFFERENTIAL
(dollars in thousands) Three months ended Three months ended
(Unaudited) June 30, 2015 June 30, 2014
Average InterestAverage Average InterestAverage
Balance Rate Balance Rate
Assets
Securities available for sale:
U. S. government sponsored enterprises$ 114,279 366 1.28%$ 110,783 381 1.38%
Mortgage backed securities and
collateralized mortgage obligations-residential 441,754 2,276 2.06 589,334 3,299 2.24
State and political subdivisions 1,939 36 7.36 3,823 70 7.32
Corporate bonds 956 - 0.00 1,403 2 0.48
Small Business Administration-guaranteed participation securities 98,894 503 2.03 108,072 539 1.99
Mortgage backed securities and
collateralized mortgage obligations-commercial 10,600 38 1.41 10,871 38 1.40
Other 685 4 2.34 665 4 2.41
Total securities available for sale 669,107 3,223 1.93 824,951 4,333 2.10
Federal funds sold and other
short-term Investments 683,110 423 0.25 606,809 376 0.25
Held to maturity securities:
Corporate bonds 9,965 154 6.17 9,950 154 6.18
Mortgage backed securities and
collateralized mortgage obligations-residential 55,509 480 3.46 70,377 577 3.28
Total held to maturity securities 65,474 634 3.87 80,327 731 3.64
Federal Reserve Bank and Federal Home Loan Bank stock 9,466 118 4.99 10,937 128 4.68
Commercial loans 210,424 2,710 5.15 221,819 2,842 5.12
Residential mortgage loans 2,648,320 29,371 4.44 2,401,020 27,548 4.59
Home equity lines of credit 354,053 3,092 3.50 339,884 3,064 3.62
Installment loans 8,226 176 8.60 5,827 167 11.47
Loans, net of unearned income 3,221,023 35,349 4.39 2,968,550 33,621 4.53
Total interest earning assets 4,648,180 39,747 3.42 4,491,574 39,189 3.49
Allowance for loan losses (46,190) (47,389)
Cash & non-interest earning assets 137,329 135,326
Total assets$ 4,739,319 $ 4,579,511
Liabilities and shareholders' equity
Deposits:
Interest bearing checking accounts$ 706,767 111 0.06%$ 632,266 89 0.06%
Money market accounts 635,347 547 0.35 655,009 618 0.38
Savings 1,249,865 599 0.19 1,240,158 592 0.19
Time deposits 1,190,234 2,500 0.84 1,144,165 2,035 0.71
Total interest bearing deposits 3,782,213 3,757 0.40 3,671,598 3,334 0.36
Short-term borrowings 182,829 300 0.66 189,802 342 0.72
Total interest bearing liabilities 3,965,042 4,057 0.41 3,861,400 3,676 0.38
Demand deposits 344,982 316,759
Other liabilities 25,591 22,325
Shareholders' equity 403,704 379,027
Total liabilities and shareholders' equity$ 4,739,319 $ 4,579,511
Net interest income, tax equivalent 35,690 35,513
Net interest spread 3.01% 3.11%
Net interest margin (net interest income
to total interest earning assets) 3.07% 3.16%
Tax equivalent adjustment (19) (33)
Net interest income 35,671 35,480
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY-
INTEREST RATES AND INTEREST DIFFERENTIAL
(dollars in thousands) Six months ended Six months ended
(Unaudited) June 30, 2015 June 30, 2014
Average InterestAverage Average InterestAverage
Balance Rate Balance Rate
Assets
Securities available for sale:
U. S. government sponsored enterprises$ 96,172 578 1.20%$ 139,907 887 1.27%
Mortgage backed securities and
collateralized mortgage obligations-residential 459,980 4,669 2.03 567,700 6,377 2.25
State and political subdivisions 2,015 74 7.31 4,971 175 7.04
Corporate bonds 1,226 1 0.16 4,956 61 2.47
Small Business Administration-guaranteed participation securities 100,270 1,025 2.05 109,079 1,095 2.01
Mortgage backed securities and
collateralized mortgage obligations-commercial 10,635 75 1.41 10,904 76 1.39
Other 685 8 2.34 662 8 2.42
Total securities available for sale 670,983 6,430 1.92 838,179 8,679 2.07
Federal funds sold and other
short-term Investments 668,269 823 0.25 591,167 727 0.25
Held to maturity securities:
Corporate bonds 9,964 308 6.17 9,948 308 6.18
Mortgage backed securities and
collateralized mortgage obligations-residential 57,419 958 3.34 72,340 1,202 3.32
Total held to maturity securities 67,383 1,266 3.76 82,288 1,510 3.67
Federal Reserve Bank and Federal Home Loan Bank stock 9,348 234 5.01 10,720 261 4.87
Commercial loans 214,713 5,506 5.13 222,074 5,639 5.08
Residential mortgage loans 2,621,417 58,329 4.46 2,378,199 54,530 4.59
Home equity lines of credit 353,161 6,153 3.51 340,281 6,000 3.56
Installment loans 8,011 351 8.84 5,712 334 11.78
Loans, net of unearned income 3,197,302 70,339 4.41 2,946,266 66,503 4.52
Total interest earning assets 4,613,285 79,092 3.44 4,468,620 77,680 3.48
Allowance for loan losses (46,392) (47,802)
Cash & non-interest earning assets 138,319 132,906
Total assets$ 4,705,212 $ 4,553,724
Liabilities and shareholders' equity
Deposits:
Interest bearing checking accounts$ 692,445 216 0.06%$ 619,076 173 0.06%
Money market accounts 636,596 1,164 0.37 650,828 1,217 0.38
Savings 1,239,737 1,257 0.20 1,232,803 1,355 0.22
Time deposits 1,185,363 4,934 0.84 1,142,001 3,986 0.70
Total interest bearing deposits 3,754,141 7,571 0.41 3,644,708 6,731 0.37
Short-term borrowings 187,560 646 0.69 195,954 735 0.76
Total interest bearing liabilities 3,941,701 8,217 0.42 3,840,662 7,466 0.39
Demand deposits 336,741 316,386
Other liabilities 25,817 22,499
Shareholders' equity 400,953 374,177
Total liabilities and shareholders' equity$ 4,705,212 $ 4,553,724
Net interest income, tax equivalent 70,875 70,214
Net interest spread 3.02% 3.09%
Net interest margin (net interest income
to total interest earning assets) 3.08% 3.15%
Tax equivalent adjustment (39) (78)
Net interest income 70,836 70,136

Non-GAAP Financial Measures Reconciliation

Tangible book value per share and tangible equity as a percentage of tangible assets at period end are non-GAAP financial measures derived from GAAP-based amounts. We calculate tangible equity and tangible assets by excluding the balance of intangible assets from shareholders’ equity and total assets, respectively. We calculate tangible book value per share by dividing tangible equity by common shares outstanding, as compared to book value per common share, which we calculate by dividing shareholders’ equity by common shares outstanding. We calculate tangible equity as a percentage of tangible assets at period end by dividing tangible equity by tangible assets at period end. We believe that this is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios.

The efficiency ratio is a non-GAAP measure of expense control relative to revenue from net interest income and fee income. We calculate the efficiency ratio by dividing total noninterest expenses as determined under GAAP, but excluding other real estate expense, net, by net interest income (fully taxable equivalent) and total noninterest income as determined under GAAP, but excluding net gains on the sale of a building, nonperforming loans and securities from this calculation. We believe that this provides a reasonable measure of primary banking expenses relative to primary banking revenue.

Core net income (“core earnings”) and core net income (“core earnings”) per share are non-GAAP financial measures derived from GAAP-based amounts. We calculate core earnings by excluding the net after-tax gain on the sale of the proposed Florida operations building during the first quarter of 2014, the net after-tax gain on an significant sale of an ORE property in the second quarter of 2014 and net after-tax gains on the sale of non-performing loans in both the second quarter of 2014 and the second quarter of 2015 from net income and from net income per share. We believe that this provides a reasonable measure of core net income (earnings).

We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our financial position, results and ratios. Our management internally assesses our performance based, in part, on these measures. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies. A reconciliation of the non-GAAP measures of tangible common equity, tangible book value per share, efficiency ratio, net income and net income per share to the underlying GAAP numbers is set forth below.

NON-GAAP FINANCIAL MEASURES RECONCILIATION
(dollars in thousands, except per share amounts)
(Unaudited)
06/30/1503/31/1506/30/14
Tangible Book Value Per Share
Equity$ 402,459 400,476 385,017
Less: Intangible assets 553 553 553
Tangible equity 401,906 399,923 384,464
Shares outstanding 95,056 94,956 94,665
Tangible book value per share 4.23 4.21 4.06
Book value per share 4.23 4.22 4.07
Tangible Equity to Tangible Assets
Total Assets 4,741,337 4,740,656 4,589,129
Less: Intangible assets 553 553 553
Tangible assets 4,740,784 4,740,103 4,588,576
Tangible Equity to Tangible Assets 8.48% 8.44% 8.38%
Equity to Assets 8.49% 8.45% 8.39%
3 Months Ended 6 Months Ended
Efficiency Ratio 06/30/1503/31/1506/30/14 06/30/1506/30/14
Net interest income$ 35,671 35,165 35,480 70,836 70,136
Taxable equivalent adjustment 19 20 33 39 78
Net interest income (fully taxable equivalent) 35,690 35,185 35,513 70,875 70,214
Non-interest income 4,454 4,623 4,505 9,077 10,264
Less: Net gain on sale of building and nonperforming loans 60 - 163 60 1,719
Less: Net gain on securities - 249 - 249 6
Revenue used for efficiency ratio 40,084 39,559 39,855 79,643 78,753
Total noninterest expense 22,131 21,857 19,437 43,988 40,238
Less: Other real estate expense, net 201 424 (1,688) 625 (833)
Expense used for efficiency ratio 21,930 21,433 21,125 43,363 41,071
Efficiency Ratio 54.71% 54.18% 53.00% 54.45% 52.15%
3 Months Ended 6 Months Ended
Core Net Income 06/30/1503/31/1506/30/14 06/30/1506/30/14
Net income$ 10,727 10,715 11,808 21,442 22,819
Less: Gain on sale of building, nonperforming loans, and significant ORE gain, net of tax 37 - 1,618 37 2,684
Core net income 10,690 10,715 10,190 21,405 20,135
Average basic shares outstanding (in thousands) 95,056 94,947 94,559 95,002 94,536
Average diluted shares outstanding (in thousands) 95,190 95,074 94,675 95,132 94,658
Net income per common share:
- Basic$ 0.113 0.113 0.125 0.226 0.241
- Diluted 0.113 0.113 0.125 0.225 0.241
Core net income per common share:
- Basic$ 0.112 0.113 0.108 0.225 0.213
- Diluted 0.112 0.113 0.108 0.225 0.213

Contact: Kevin T. Timmons Vice President/Treasurer (518) 381-3607

Source:TrustCo Bank Corp NY