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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended
 
Commission File Number 0-10592
June 30, 2014

TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)

NEW YORK
 
14‑1630287
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK
12302
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code:
(518) 377‑3311

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes   o No

Indicate  by check mark whether the registrant has submitted electronically and  posted  on  its  corporate  Web  site,  if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405  of  this  chapter)  during the preceding 12 months (or for such shorter period  that  the  registrant  was  required  to  submit  and  post  such files).  x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes   x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 
Common Stock
Number of Shares Outstanding
as of August 1, 2014
$1 Par Value
94,676,409


TrustCo Bank Corp NY

INDEX

Part I.
FINANCIAL INFORMATION
PAGE NO.
 
Item 1.
Consolidated Interim Financial Statements (Unaudited):
 
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7-8
 
 
 
 
9 – 38
 
 
 
 
39
 
Item 2.
40-62
 
 
 
Item 3.
63
 
 
 
Item 4.
63
 
 
 
Part II.
OTHER INFORMATION
 
 
 
 
Item 1.
64
 
 
 
Item 1A.
64
 
 
 
Item 2.
64
 
 
 
Item 3.
64
 
 
 
Item 4.
64
 
 
 
Item 5.
64
 
 
 
Item 6.
65

2

TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)

 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
 
 
   
   
   
 
Interest and dividend income:
 
   
   
   
 
Interest and fees on loans
 
$
33,614
     
31,639
     
66,488
     
63,120
 
Interest and dividends on securities available for sale:
                               
U. S. government sponsored enterprises
   
381
     
627
     
887
     
1,443
 
State and political subdivisions
   
44
     
148
     
112
     
339
 
Mortgage-backed securities and collateralized mortgage obligations-residential
   
3,299
     
2,701
     
6,377
     
5,470
 
Corporate bonds
   
2
     
233
     
61
     
451
 
Small Business Administration-guaranteed participation securities
   
539
     
564
     
1,095
     
1,060
 
Mortgage-backed securities and collateralized mortgage obligations-commercial
   
38
     
38
     
76
     
67
 
Other securities
   
4
     
3
     
8
     
8
 
Total interest and dividends on securities available for sale
   
4,307
     
4,314
     
8,616
     
8,838
 
 
                               
Interest on held to maturity securities:
                               
Mortgage-backed securities and collateralized mortgage obligations-residential
   
577
     
716
     
1,202
     
1,505
 
Corporate bonds
   
154
     
214
     
308
     
526
 
Total interest on held to maturity securities
   
731
     
930
     
1,510
     
2,031
 
 
                               
Federal Reserve Bank and Federal Home Loan Bank stock
   
128
     
121
     
261
     
240
 
Interest on federal funds sold and other short-term investments
   
376
     
327
     
727
     
572
 
Total interest income
   
39,156
     
37,331
     
77,602
     
74,801
 
 
                               
Interest expense:
                               
Interest on deposits:
                               
Interest-bearing checking
   
89
     
82
     
173
     
162
 
Savings
   
592
     
829
     
1,355
     
1,745
 
Money market deposit accounts
   
618
     
630
     
1,217
     
1,315
 
Time deposits
   
2,035
     
1,883
     
3,986
     
3,703
 
Interest on short-term borrowings
   
342
     
367
     
735
     
731
 
Total interest expense
   
3,676
     
3,791
     
7,466
     
7,656
 
 
                               
Net interest income
   
35,480
     
33,540
     
70,136
     
67,145
 
Provision for loan losses
   
1,500
     
2,000
     
3,000
     
4,000
 
Net interest income after provision for loan losses
   
33,980
     
31,540
     
67,136
     
63,145
 
 
                               
Noninterest income:
                               
Trustco financial services income
   
1,405
     
1,287
     
2,915
     
2,708
 
Fees for services to customers
   
2,732
     
2,968
     
5,253
     
5,855
 
Net gain on securities transactions
   
-
     
1,432
     
6
     
1,434
 
Other
   
368
     
229
     
2,090
     
511
 
Total noninterest income
   
4,505
     
5,916
     
10,264
     
10,508
 
 
                               
Noninterest expenses:
                               
Salaries and employee benefits
   
8,012
     
7,647
     
15,604
     
15,825
 
Net occupancy expense
   
4,110
     
3,910
     
8,369
     
7,963
 
Equipment expense
   
1,823
     
1,582
     
3,575
     
3,300
 
Professional services
   
1,438
     
1,565
     
2,724
     
2,985
 
Outsourced services
   
1,425
     
1,350
     
2,750
     
2,700
 
Advertising expense
   
657
     
714
     
1,256
     
1,444
 
FDIC and other insurance
   
1,000
     
1,004
     
1,904
     
2,014
 
Other real estate (income) expense, net
   
(1,688
)
   
1,473
     
(833
)
   
2,222
 
Other
   
2,660
     
2,624
     
4,889
     
4,973
 
Total noninterest expenses
   
19,437
     
21,869
     
40,238
     
43,426
 
 
                               
Income before taxes
   
19,048
     
15,587
     
37,162
     
30,227
 
Income taxes
   
7,240
     
5,824
     
14,343
     
11,296
 
 
                               
Net income
 
$
11,808
     
9,763
     
22,819
     
18,931
 
 
                               
Net income per Common Share:
                               
- Basic
 
$
0.125
     
0.104
     
0.241
     
0.201
 
 
                               
- Diluted
 
$
0.125
     
0.104
     
0.241
     
0.201
 

See accompanying notes to unaudited consolidated interim financial statements.
3

TRUSTCO BANK CORP NY
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollars in thousands)

 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
 
 
   
   
   
 
Net income
 
$
11,808
     
9,763
     
22,819
     
18,931
 
 
                               
Net unrealized holding gain (loss) on securities available for sale
   
11,429
     
(26,315
)
   
18,884
     
(29,254
)
Reclassification adjustments for net gain recognized in income
   
-
     
(1,432
)
   
(6
)
   
(1,434
)
Tax effect
   
(4,517
)
   
11,064
     
(7,543
)
   
12,237
 
 
                               
Net unrealized gain (loss) on securities available for sale, net of tax
   
6,912
     
(16,683
)
   
11,335
     
(18,451
)
 
                               
Amortization of net actuarial (gain) loss
   
(74
)
   
101
     
(146
)
   
233
 
Amortization of prior service credit
   
(45
)
   
(65
)
   
(90
)
   
(131
)
Tax effect
   
48
     
(15
)
   
93
     
(40
)
Amortization of net actuarial (gain) loss and prior service credit on pension and postretirement plans, net of tax
   
(71
)
   
21
     
(143
)
   
62
 
 
                               
Other comprehensive income (loss), net of tax
   
6,841
     
(16,662
)
   
11,192
     
(18,389
)
Comprehensive income (loss)
 
$
18,649
     
(6,899
)
   
34,011
     
542
 

See accompanying notes to unaudited consolidated interim financial statements.
4

TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(dollars in thousands)
 
 
 
June 30, 2014
   
December 31, 2013
 
ASSETS:
 
(Unaudited)
   
(Audited)
 
 
 
   
 
Cash and due from banks
 
$
48,034
     
46,453
 
 
               
Federal funds sold and other short term investments
   
573,514
     
536,591
 
Total cash and cash equivalents
   
621,548
     
583,044
 
 
               
Securities available for sale
   
811,770
     
863,754
 
 
               
Held to maturity securities (fair value 2014 $82,895; 2013 $90,305)
   
77,926
     
86,215
 
 
               
Federal Reserve Bank and Federal Home Loan Bank stock
   
10,951
     
10,500
 
 
               
Loans, net of deferred fees and costs
   
3,006,150
     
2,908,809
 
Less:
               
Allowance for loan losses
   
46,935
     
47,714
 
Net loans
   
2,959,215
     
2,861,095
 
 
               
Bank premises and equipment, net
   
36,658
     
34,414
 
Other assets
   
71,061
     
82,430
 
 
               
Total assets
 
$
4,589,129
     
4,521,452
 
 
               
LIABILITIES:
               
Deposits:
               
Demand
 
$
324,277
     
318,456
 
Interest-bearing checking
   
643,473
     
611,127
 
Savings accounts
   
1,233,347
     
1,218,038
 
Money market deposit accounts
   
651,367
     
648,402
 
Certificates of deposit (in denominations of $100,000 or more)
   
436,785
     
419,301
 
Other time accounts
   
705,938
     
711,747
 
Total deposits
   
3,995,187
     
3,927,071
 
 
               
Short-term borrowings
   
181,516
     
204,162
 
Accrued expenses and other liabilities
   
27,409
     
28,406
 
 
               
Total liabilities
   
4,204,112
     
4,159,639
 
 
               
SHAREHOLDERS' EQUITY:
               
Capital stock par value $1; 150,000,000 shares authorized;98,927,123 shares issued at June 30, 2014 and December 31, 2013
   
98,927
     
98,927
 
Surplus
   
172,769
     
173,144
 
Undivided profits
   
157,832
     
147,432
 
Accumulated other comprehensive loss, net of tax
   
(2,611
)
   
(13,803
)
Treasury stock at cost - 4,261,714 and  4,463,786 shares at June 30, 2014 and December 31, 2013, respectively
   
(41,900
)
   
(43,887
)
 
               
Total shareholders' equity
   
385,017
     
361,813
 
 
               
Total liabilities and shareholders' equity
 
$
4,589,129
     
4,521,452
 
 
See accompanying notes to unaudited consolidated interim financial statements.
5

TRUSTCO BANK CORP NY
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
(dollars in thousands, except per share data)

 
 
   
   
   
Accumulated
   
   
 
 
 
   
   
   
Other
   
   
 
 
 
Capital
   
   
Undivided
   
Comprehensive
   
Treasury
   
 
 
 
Stock
   
Surplus
   
Profits
   
Income (Loss)
   
Stock
   
Total
 
 
 
   
   
   
   
   
 
 
 
   
   
   
   
   
 
Beginning balance, January 1, 2013
 
$
98,912
     
174,899
     
132,378
     
1,558
     
(48,949
)
   
358,798
 
Net Income
   
-
     
-
     
18,931
     
-
     
-
     
18,931
 
Other comprehensive loss, net of tax
   
-
     
-
     
-
     
(18,389
)
   
-
     
(18,389
)
Cash dividend declared, $.1312 per share
   
-
     
-
     
(12,356
)
   
-
     
-
     
(12,356
)
Sale of treasury stock (268,509 shares)
   
-
     
(1,173
)
   
-
     
-
     
2,641
     
1,468
 
Stock based compensation expense
   
-
     
171
     
-
     
-
     
-
     
171
 
 
                                               
Ending balance, June 30, 2013
 
$
98,912
     
173,897
     
138,953
     
(16,831
)
   
(46,308
)
   
348,623
 
 
                                               
Beginning balance, January 1, 2014
 
$
98,927
     
173,144
     
147,432
     
(13,803
)
   
(43,887
)
   
361,813
 
Net Income
   
-
     
-
     
22,819
     
-
     
-
     
22,819
 
Other comprehensive income, net of tax
   
-
     
-
     
-
     
11,192
     
-
     
11,192
 
Cash dividend declared, $.1312 per share
   
-
     
-
     
(12,419
)
   
-
     
-
     
(12,419
)
Sale of treasury stock (202,072 shares)
   
-
     
(548
)
   
-
     
-
     
1,987
     
1,439
 
Stock based compensation expense
   
-
     
173
     
-
     
-
     
-
     
173
 
 
                                               
Ending balance, June 30, 2014
 
$
98,927
     
172,769
     
157,832
     
(2,611
)
   
(41,900
)
   
385,017
 

See accompanying notes to unaudited consolidated interim financial statements.

6

TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)

 
 
Six months ended June 30,
 
 
 
2014
   
2013
 
 
 
   
 
Cash flows from operating activities:
 
   
 
Net income
 
$
22,819
     
18,931
 
 
               
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
2,432
     
2,541
 
Net (gain) loss on sale of other real estate owned
   
(2,482
)
   
36
 
Writedown of other real estate owned
   
998
     
1,098
 
Net gain on sale of building held for sale
   
(1,556
)
   
-
 
Provision for loan losses
   
3,000
     
4,000
 
Deferred tax expense (benefit)
   
1,508
     
(27
)
Stock based compensation expense
   
173
     
171
 
Net gain on sale of bank premises and equipment
   
(1
)
   
(16
)
Net gain on sales and calls of securities
   
(6
)
   
(1,434
)
Decrease (increase) in taxes receivable
   
1,265
     
(1,329
)
Increase in interest receivable
   
(152
)
   
(332
)
Decrease in interest payable
   
(2
)
   
(24
)
Decrease (increase) in other assets
   
(2,561
)
   
6,272
 
Increase (decrease) in accrued expenses and other liabilities
   
(1,009
)
   
1,610
 
Total adjustments
   
1,607
     
12,566
 
Net cash provided by operating activities
   
24,426
     
31,497
 
 
               
Cash flows from investing activities:
               
 
               
Proceeds from sales and calls of securities available for sale
   
180,623
     
323,974
 
Proceeds from calls and maturities of held to maturity securities
   
8,289
     
44,637
 
Purchases of securities available for sale
   
(118,755
)
   
(329,374
)
Proceeds from maturities of securities available for sale
   
9,000
     
10,050
 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock
   
(451
)
   
(868
)
Net increase in loans
   
(107,000
)
   
(89,783
)
Net proceeds from sale of building held for sale
   
4,745
     
-
 
Proceeds from dispositions of other real estate owned
   
7,230
     
4,978
 
Proceeds from dispositions of bank premises and equipment
   
53
     
16
 
Purchases of bank premises and equipment
   
(4,160
)
   
(4,603
)
Net cash used in investing activities
   
(20,426
)
   
(40,973
)
 
               
Cash flows from financing activities:
               
 
               
Net increase in deposits
   
68,116
     
88,683
 
Net (decrease) increase in short-term borrowings
   
(22,646
)
   
16,479
 
Proceeds from sale of treasury stock
   
1,439
     
1,468
 
Dividends paid
   
(12,405
)
   
(12,338
)
Net cash provided by financing activities
   
34,504
     
94,292
 
Net increase in cash and cash equivalents
   
38,504
     
84,816
 
Cash and cash equivalents at beginning of period
   
583,044
     
544,016
 
Cash and cash equivalents at end of period
 
$
621,548
     
628,832
 

7

Supplemental Disclosure of Cash Flow Information:
 
   
 
Cash paid during the year for:
 
   
 
Interest paid
 
$
7,468
     
7,680
 
Income taxes paid
   
13,142
     
12,691
 
Other non cash items:
               
Transfer of loans to other real estate owned
   
5,880
     
7,752
 
Transfer of other real estate owned to fixed assets
   
568
     
-
 
Increase in dividends payable
   
14
     
18
 
Change in unrealized gain (loss) on securities available for sale-gross of deferred taxes
   
18,878
     
(30,688
)
Change in deferred tax effect on unrealized gain (loss) on securities available for sale
   
(7,543
)
   
12,237
 
Amortization of net actuarial loss and prior service credit on pension and postretirement plans
   
(236
)
   
102
 
Change in deferred tax effect of amortization of net actuarial loss and prior service credit
   
93
     
(40
)

See accompanying notes to unaudited consolidated interim financial statements.
8

(1) Financial Statement Presentation

The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the subsidiaries after elimination of all significant intercompany accounts and transactions.  Prior period amounts are reclassified when necessary to conform to the current period presentation.  The net income reported for the three months and six months ended June 30, 2014 is not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or any interim periods.  These financial statements consider events that occurred through the date of filing.

In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements contain all recurring adjustments necessary to present fairly the financial position as of June 30, 2014, the results of operations for the three months and six months ended June 30, 2014 and 2013, and the cash flows for the six months ended June 30, 2014 and 2013.  The accompanying Consolidated Interim Financial Statements should be read in conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial Statements, including notes thereto, which are included in TrustCo Bank Corp NY's 2013 Annual Report to Shareholders on Form 10-K.  The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.

(2) Earnings Per Share

The Company computes earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share (“ASC 260”). TrustCo adopted FASB ASC 260-10 (“ASC 260-10”), Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, which clarified that unvested share-based payment awards that contain nonforfeitable rights to receive dividends or divided equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”).

Participating securities under this statement include the unvested employees’ and directors’ restricted stock awards with time-based vesting, which receive nonforfeitable dividend payments.

9

A reconciliation of the component parts of earnings per share for the three months and six months ended June 30, 2014 and 2013 is as follows:
 
(dollars in thousands, except per share data)
 
   
 
 
 
2014
   
2013
 
For the three months ended June 30:
 
   
 
Net income
 
$
11,808
   
$
9,763
 
Less: Net income allocated to participating securities
   
13
     
11
 
Net income allocated to common shareholders
 
$
11,795
   
$
9,752
 
Basic EPS:
               
Distributed earnings allocated to common stock
 
$
6,213
   
$
6,182
 
Undistributed earnings allocated to common stock
   
5,582
     
3,570
 
Net income allocated to common shareholders
 
$
11,795
   
$
9,752
 
Weighted average common shares outstanding including participating securities
   
94,665
     
94,204
 
Less: Participating securities
   
106
     
106
 
Weighted average common shares
   
94,559
     
94,098
 
 
               
Basic EPS
   
0.125
     
0.104
 
 
               
Diluted EPS:
               
Net income allocated to common shareholders
 
$
11,795
   
$
9,752
 
Weighted average common shares for basic EPS
   
94,559
     
94,098
 
Effect of Dilutive Securities:
               
Stock Options
   
116
     
7
 
Weighted average common shares including potential dilutive shares
   
94,675
     
94,105
 
 
               
Diluted EPS
   
0.125
     
0.104
 

10

(dollars in thousands, except per share data)
 
   
 
 
 
2014
   
2013
 
For the six months ended June 30:
 
   
 
Net income
 
$
22,819
   
$
18,931
 
Less: Net income allocated to participating securities
   
26
     
21
 
Net income allocated to common shareholders
 
$
22,793
   
$
18,910
 
Basic EPS:
               
Distributed earnings allocated to common stock
 
$
12,419
   
$
12,356
 
Undistributed earnings allocated to common stock
   
10,374
     
6,554
 
Net income allocated to common shareholders
 
$
22,793
   
$
18,910
 
 
               
Weighted average common shares outstanding including participating securities
   
94,642
     
94,134
 
Less: Participating securities
   
106
     
106
 
Weighted average common shares
   
94,536
     
94,028
 
 
               
Basic EPS
   
0.241
     
0.201
 
 
               
Diluted EPS:
               
Net income allocated to common shareholders
 
$
22,793
   
$
18,910
 
Weighted average common shares for basic EPS
   
94,536
     
94,028
 
Effect of Dilutive Securities:
               
Stock Options
   
122
     
6
 
Weighted average common shares including potential dilutive shares
   
94,658
     
94,034
 
 
               
Diluted EPS
   
0.241
     
0.201
 
 
For both the three months and six months ended June 30, 2014 and 2013, the weighted average number of antidilutive stock options excluded from diluted earnings per share was approximately 2.4 million and 2.7 million, respectively.  The stock options are antidilutive because the strike price is greater than the average fair value of the Company’s common stock for the periods presented.

(3) Benefit Plans

The table below outlines the components of the Company's net periodic benefit recognized during the three month and six month periods ended June 30, 2014 and 2013 for its pension and other postretirement benefit plans:
11

 
 
For the three months ended June 30,
 
 
 
Pension Benefits
   
Other Postretirement Benefits
 
(dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
 
 
   
   
   
 
Service cost
   
18
     
20
     
15
     
14
 
Interest cost
   
336
     
322
     
32
     
27
 
Expected return on plan assets
   
(609
)
   
(597
)
   
(169
)
   
(126
)
Amortization of net (gain) loss
   
-
     
111
     
(74
)
   
(10
)
Amortization of prior service credit
   
-
     
-
     
(45
)
   
(65
)
Net periodic benefit
   
(255
)
   
(144
)
   
(241
)
   
(160
)

 
 
For the six months ended June 30,
 
 
 
Pension Benefits
   
Other Postretirement Benefits
 
(dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
 
 
   
   
   
 
Service cost
   
36
     
34
     
29
     
26
 
Interest cost
   
672
     
637
     
64
     
51
 
Expected return on plan assets
   
(1,218
)
   
(1,095
)
   
(338
)
   
(249
)
Amortization of net (gain) loss
   
-
     
258
     
(146
)
   
(25
)
Amortization of prior service credit
   
-
     
-
     
(90
)
   
(131
)
Net periodic benefit
   
(510
)
   
(166
)
   
(481
)
   
(328
)

The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2013, that it did not expect to make contributions to its pension and postretirement benefit plans in 2014.  As of June 30, 2014, no contributions have been made, however, this decision is reviewed each quarter and is subject to change based upon market conditions.

Since 2003, the Company has not subsidized retiree medical insurance premiums.  However, it continues to provide postretirement medical benefits to a limited number of current and retired executives in accordance with the terms of their employment contracts.

(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:
12

 
 
June 30, 2014
 
(dollars in thousands)
 
   
Gross
   
Gross
   
 
 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
 
 
Cost
   
Gains
   
Losses
   
Value
 
U.S. government sponsored enterprises
 
$
103,805
     
56
     
521
     
103,340
 
State and political subdivisions
   
3,823
     
98
     
-
     
3,921
 
Mortgage backed securities and collateralized mortgage obligations - residential
   
594,869
     
1,885
     
7,237
     
589,517
 
Corporate bonds
   
1,403
     
-
     
1
     
1,402
 
 
                               
Small Business Administration-guaranteed participation securities
   
107,542
     
-
     
5,175
     
102,367
 
Mortgage backed securities and collateralized mortgage obligations - commercial
   
10,832
     
-
     
288
     
10,544
 
Other
   
650
     
-
     
6
     
644
 
Total debt securities
   
822,924
     
2,039
     
13,228
     
811,735
 
Equity securities
   
35
     
-
     
-
     
35
 
Total securities available for sale
 
$
822,959
     
2,039
     
13,228
     
811,770
 

 
 
December 31, 2013
 
(dollars in thousands)
 
   
Gross
   
Gross
   
 
 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
 
 
Cost
   
Gains
   
Losses
   
Value
 
U.S. government sponsored enterprises
 
$
200,531
     
22
     
1,724
     
198,829
 
State and political subdivisions
   
7,623
     
135
     
-
     
7,758
 
Mortgage backed securities and collateralized mortgage obligations - residential
   
552,230
     
267
     
20,048
     
532,449
 
Corporate bonds
   
10,429
     
43
     
1
     
10,471
 
Small Business Administration-guaranteed participation securities
   
111,383
     
-
     
8,354
     
103,029
 
Mortgage backed securities and collateralized mortgage obligations - commercial
   
10,965
     
-
     
407
     
10,558
 
Other
   
650
     
-
     
-
     
650
 
Total debt securities
   
893,811
     
467
     
30,534
     
863,744
 
Equity securities
   
10
     
-
     
-
     
10
 
Total securities available for sale
 
$
893,821
     
467
     
30,534
     
863,754
 

13

The following table distributes the debt securities included in the available for sale portfolio as of June 30, 2014, based on the securities’ final maturity (mortgage-backed securities and collateralized mortgage obligations are stated using an estimated average life):

(dollars in thousands)
 
Amortized
   
Fair
 
 
 
Cost
   
Value
 
Due in one year or less
 
$
2,195
     
2,213
 
Due in one year through five years
   
360,427
     
360,596
 
Due after five years through ten years
   
458,992
     
447,603
 
Due after ten years
   
1,310
     
1,323
 
 
 
$
822,924
     
811,735
 

Actual maturities may differ from the above because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.

Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

 
 
June 30, 2014
 
(dollars in thousands)
 
Less than
   
12 months
   
   
 
 
 
12 months
   
or more
   
Total
 
 
 
   
Gross
   
   
Gross
   
   
Gross
 
 
 
Fair
   
Unreal.
   
Fair
   
Unreal.
   
Fair
   
Unreal.
 
 
 
Value
   
Loss
   
Value
   
Loss
   
Value
   
Loss
 
U.S. government sponsored enterprises
 
$
22,503
     
17
     
54,995
     
504
     
77,498
     
521
 
Mortgage backed securities and collateralized mortgage obligations - residential
   
49,195
     
242
     
353,561
     
6,995
     
402,756
     
7,237
 
Corporate bonds
   
501
     
1
     
-
     
-
     
501
     
1
 
Small Business Administration-guaranteed participation securities
   
-
     
-
     
102,367
     
5,175
     
102,367
     
5,175
 
Mortgage backed securities and collateralized mortgage obligations - commercial
   
-
     
-
     
10,543
     
288
     
10,543
     
288
 
Other
   
594
     
6
     
-
     
-
     
594
     
6
 
Total
 
$
72,793
     
266
     
521,466
     
12,962
     
594,259
     
13,228
 

14

 
 
December 31, 2013
 
(dollars in thousands)
 
Less than
   
12 months
   
   
 
 
 
12 months
   
or more
   
Total
 
 
 
   
Gross
   
   
Gross
   
   
Gross
 
 
 
Fair
   
Unreal.
   
Fair
   
Unreal.
   
Fair
   
Unreal.
 
 
 
Value
   
Loss
   
Value
   
Loss
   
Value
   
Loss
 
U.S. government sponsored enterprises
 
$
198,023
     
1,724
     
-
     
-
     
198,023
     
1,724
 
Mortgage backed securities and collateralized mortgage obligations - residential
   
466,056
     
17,698
     
54,835
     
2,350
     
520,891
     
20,048
 
Corporate bonds
   
902
     
1
     
-
     
-
     
902
     
1
 
Small Business Administration-guaranteed participation securities
   
103,029
     
8,354
     
-
     
-
     
103,029
     
8,354
 
Mortgage backed securities and collateralized mortgage obligations - commercial
   
10,558
     
407
     
-
     
-
     
10,558
     
407
 
Total
 
$
778,568
     
28,184
     
54,835
     
2,350
     
833,403
     
30,534
 

The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three months and six months ended June 30, 2014 and 2013 are as follows:

(dollars in thousands)
 
Three months ended June 30,
   
Six months ended June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
 
 
   
   
   
 
Proceeds from sales
 
$
-
     
118,560
   
$
-
     
118,560
 
Proceeds from calls
   
39,301
     
96,417
     
180,623
     
205,414
 
Gross realized gains
   
-
     
1,512
     
6
     
1,514
 
Gross realized losses
   
-
     
80
     
-
     
80
 

Tax expense recognized on net gains on sales of securities available for sale were approximately $573 thousand for the three months ended June 30, 2013.  There were no net gains on sales of securities available for sale during the three months ended June 30, 2014.  Tax expense recognized on net gains on sales of securities available for sale were approximately $2 thousand and $574 thousand for the six months ended June 30, 2014 and 2013 respectively.

(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:
15

 
 
June 30, 2014
 
(dollars in thousands)
 
   
Gross
   
Gross
   
 
 
 
Amortized
   
Unrecognized
   
Unrecognized
   
Fair
 
 
 
Cost
   
Gains
   
Losses
   
Value
 
Mortgage backed securities and collateralized mortgage obligations - residential
 
$
67,974
     
3,614
     
-
     
71,588
 
Corporate bonds
   
9,952
     
1,355
     
-
     
11,307
 
Total held to maturity
 
$
77,926
     
4,969
     
-
     
82,895
 
 
 
 
December 31, 2013
 
(dollars in thousands)
 
   
Gross
   
Gross
   
 
 
 
Amortized
   
Unrecognized
   
Unrecognized
   
Fair
 
 
 
Cost
   
Gains
   
Losses
   
Value
 
Mortgage backed securities and collateralized mortgage obligations - residential
 
$
76,270
     
2,744
     
138
     
78,876
 
Corporate bonds
   
9,945
     
1,484
     
-
     
11,429
 
Total held to maturity
 
$
86,215
     
4,228
     
138
     
90,305
 

The following table distributes the debt securities included in the held to maturity portfolio as of June 30, 2014, based on the securities’ final maturity (mortgage-backed securities and collateralized mortgage obligations are stated using an estimated average life):

(dollars in thousands)
 
Amortized
   
Fair
 
 
 
Cost
   
Value
 
Due in one year through five years
   
76,333
     
81,192
 
Due in five years through ten years
   
1,593
     
1,703
 
 
 
$
77,926
     
82,895
 

Actual maturities may differ from the above because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.

There were no held to maturity securities in an unrecognized loss position as of June 30, 2014.

Gross unrecognized losses on held to maturity securities and the related fair values aggregated by the length of time that individual securities have been in an unrecognized loss position as of December 31, 2013 were as follows:

 
 
December 31, 2013
 
(dollars in thousands)
 
Less than
   
12 months
   
   
 
 
 
12 months
   
or more
   
Total
 
 
 
   
Gross
   
   
Gross
   
   
Gross
 
 
 
Fair
   
Unrec.
   
Fair
   
Unrec.
   
Fair
   
Unrec.
 
 
 
Value
   
Loss
   
Value
   
Loss
   
Value
   
Loss
 
Mortgage backed securities and collateralized mortgage obligations - residential
 
$
27,091
     
138
     
-
     
-
     
27,091
     
138
 
Total
 
$
27,091
     
138
     
-
     
-
     
27,091
     
138
 

16

There were no sales or transfers of held to maturity securities during the three months and six months ended June 30, 2014 and 2013.

(c) Other-Than-Temporary Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under ASC 320 “Investments – Debt and Equity Securities.”

In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If management intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of June 30, 2014, the Company’s security portfolio consisted of 202 securities, 79 of which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises

In the case of unrealized losses on U.S. government sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2014.

Mortgage backed securities and collateralized mortgage obligations - residential

All of the mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, which are institutions the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2014.
17

Corporate bonds

The Company’s exposure is primarily in bonds of firms in the financial sector. All of the corporate bonds owned continue to be rated investment grade, all are current as to the payment of interest and the Company expects to collect the full amount of the principal balance at maturity. The Company actively monitors the firms and the bonds. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2014.

Small Business Administration (SBA) - guaranteed participation securities

All of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2014.

Mortgage backed securities and collateralized mortgage obligations - commercial
All of the mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government-sponsored entities and agencies, are current as to the payment of interest and principal and the Company expects to collect the full amount of the principal and interest payments. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2014.

Other securities

In the case of unrealized losses on other securities, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2014.

As a result of the above analysis, during the three and six months ended June 30, 2014, the Company did not recognize any other-than-temporary impairment losses for credit or any other reason.

(5) Loans and Allowance for Loan Losses

The following tables present the recorded investment in loans by loan class:
18

 
 
June 30, 2014
 
(dollars in thousands)
 
New York and
   
   
 
 
 
other states*
   
Florida
   
Total
 
Commercial:
 
   
   
 
Commercial real estate
 
$
167,815
     
21,908
     
189,723
 
Other
   
32,864
     
68
     
32,932
 
Real estate mortgage - 1 to 4 family:
                       
First mortgages
   
1,960,668
     
422,564
     
2,383,232
 
Home equity loans
   
49,695
     
4,573
     
54,268
 
Home equity lines of credit
   
301,236
     
38,661
     
339,897
 
Installment
   
5,466
     
632
     
6,098
 
Total loans, net
 
$
2,517,744
     
488,406
     
3,006,150
 
Less: Allowance for loan losses
                   
46,935
 
Net loans
                 
$
2,959,215
 

 
 
December 31, 2013
 
(dollars in thousands)
 
New York and
   
   
 
 
 
other states*
   
Florida
   
Total
 
Commercial:
 
   
   
 
Commercial real estate
 
$
169,722
     
21,404
     
191,126
 
Other
   
32,323
     
32
     
32,355
 
Real estate mortgage - 1 to 4 family:
                       
First mortgages
   
1,909,447
     
378,361
     
2,287,808
 
Home equity loans
   
47,494
     
3,642
     
51,136
 
Home equity lines of credit
   
304,044
     
36,445
     
340,489
 
Installment
   
5,292
     
603
     
5,895
 
Total loans, net
 
$
2,468,322
     
440,487
     
2,908,809
 
Less: Allowance for loan losses
                   
47,714
 
Net loans
                 
$
2,861,095
 

* Includes New York, New Jersey, Vermont, and Massachusetts.

At June 30, 2014 and December 31, 2013, the Company had approximately $34.3 million and $35.4 million of real estate construction loans, respectively.  Of the $34.3 million in real estate construction loans at June 30, 2014, approximately $15.4 million are secured by first mortgages to residential borrowers while approximately $18.9 million were to commercial borrowers for residential construction projects. Of the $35.4 million in real estate construction loans at December 31, 2013, approximately $13.9 million are secured by first mortgages to residential borrowers while approximately $21.5 million were to commercial borrowers for residential construction projects. The vast majority of construction loans are in the Company’s New York market.

TrustCo lends in the geographic territory of its branch locations in New York, Florida, Massachusetts, New Jersey and Vermont. Although the loan portfolio is diversified, a portion of its debtors’ ability to repay depends significantly on the economic conditions prevailing in the respective geographic territory.

The following tables present the recorded investment in non-accrual loans by loan class:
19

 
 
June 30, 2014
 
(dollars in thousands)
 
New York and
   
   
 
 
 
other states
   
Florida
   
Total
 
Loans in non-accrual status:
 
   
   
 
Commercial:
 
   
   
 
Commercial real estate
 
$
5,010
     
517
     
5,527
 
Other
   
122
     
-
     
122
 
Real estate mortgage - 1 to 4 family:
                       
First mortgages
   
26,886
     
3,140
     
30,026
 
Home equity loans
   
517
     
-
     
517
 
Home equity lines of credit
   
4,030
     
438
     
4,468
 
Installment
   
87
     
1
     
88
 
Total non-accrual loans
   
36,652
     
4,096
     
40,748
 
Restructured real estate mortgages - 1 to 4 family
   
159
     
-
     
159
 
Total nonperforming loans
 
$
36,811
     
4,096
     
40,907
 

 
 
December 31, 2013
 
(dollars in thousands)
 
New York and
   
   
 
 
 
other states
   
Florida
   
Total
 
Loans in non-accrual status:
 
   
   
 
Commercial:
 
   
   
 
Commercial real estate
 
$
6,620
     
-
     
6,620
 
Other
   
332
     
-
     
332
 
Real estate mortgage - 1 to 4 family:
                       
First mortgages
   
26,713
     
4,781
     
31,494
 
Home equity loans
   
691
     
-
     
691
 
Home equity lines of credit
   
3,641
     
356
     
3,997
 
Installment
   
93
     
-
     
93
 
Total non-accrual loans
   
38,090
     
5,137
     
43,227
 
Restructured real estate mortgages - 1 to 4 family
   
166
     
-
     
166
 
Total nonperforming loans
 
$
38,256
     
5,137
     
43,393
 

As of June 30, 2014 and December 31, 2013, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

The following tables present the aging of the recorded investment in past due loans by loan class and by region as of June 30, 2014 and December 31, 2013:

New York and other states:

 
 
June 30, 2014
 
(dollars in thousands)
 
 
30-59
Days
Past Due
   
60-89
Days
Past Due
   
90+
Days
Past Due
   
Total
30+ days
Past Due
   
Current
   
Total
Loans
 
 
                         
   
   
 
Commercial:
                         
   
   
 
Commercial real estate
 
$
54
     
-
     
3,493
     
3,547
     
164,268
     
167,815
 
Other
   
-
     
-
     
122
     
122
     
32,742
     
32,864
 
Real estate mortgage - 1 to 4 family:
                                               
First mortgages
   
3,515
     
1,620
     
20,018
     
25,153
     
1,935,515
     
1,960,668
 
Home equity loans
   
57
     
56
     
452
     
565
     
49,130
     
49,695
 
Home equity lines of credit
   
619
     
334
     
2,364
     
3,317
     
297,919
     
301,236
 
Installment
   
75
     
38
     
74
     
187
     
5,279
     
5,466
 
 
                                               
Total
 
$
4,320
     
2,048
     
26,523
     
32,891
     
2,484,853
     
2,517,744
 

20

Florida:
 
(dollars in thousands)
 
30-59
Days
Past Due
   
60-89
Days
Past Due
   
90 +
Days
Past Due
   
Total
30+ days
Past Due
   
Current
   
Total
Loans
 
 
 
   
   
   
   
   
 
Commercial:
 
   
   
   
   
   
 
Commercial real estate
 
$
-
     
-
     
-
     
-
     
21,908
     
21,908
 
Other
   
-
     
-
     
-
     
-
     
68
     
68
 
Real estate mortgage - 1 to 4 family:
                                               
First mortgages
   
726
     
-
     
2,504
     
3,230
     
419,334
     
422,564
 
Home equity loans
   
-
     
-
     
-
     
-
     
4,573
     
4,573
 
Home equity lines of credit
   
34
     
-
     
28
     
62
     
38,599
     
38,661
 
Installment
   
14
     
-
     
-
     
14
     
618
     
632
 
 
                                               
Total
 
$
774
     
-
     
2,532