-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ih0/Ytybdj//FIheeu6qgY87MXY32EeHSUAjNOD1S+zIC4Nbm0tPxqdhLu0qkvzt ot7ko7hgNoenxBWXghKNfQ== 0000357301-96-000007.txt : 19960328 0000357301-96-000007.hdr.sgml : 19960328 ACCESSION NUMBER: 0000357301-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSTCO BANK CORP N Y CENTRAL INDEX KEY: 0000357301 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 141630287 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10592 FILM NUMBER: 96538800 BUSINESS ADDRESS: STREET 1: 192 ERIE BOULEVARD CITY: SCHENECTADY STATE: NY ZIP: 12305 BUSINESS PHONE: 5183773311 10-K 1 COMBINED FILES FOR 12/31/95 FORM 10-K AND EXHIBITS FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________ to ______________ Commission file number 0-10592 ______________________________ TRUSTCO BANK CORP NY (Exact name of registrant as specified in its charter) NEW YORK 14-1630287 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 320 STATE STREET, SCHENECTADY, NEW YORK 12305 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (518) 377-3311 _______________ Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of each class which registered ________________ ________________ None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value (Title of class) ______________ 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. Yes.(x) No.( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K.[ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock: Number of Shares Outstanding Class of Common Stock as of March 1, 1996 __________________ __________________ $1 Par Value 17,651,986 The aggregate market value of registrant's common stock (based upon the closing price on March 1, 1996) held by non-affiliates was approximately $379,518,000. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1995 (Part I, Part II, and Part IV). (2) Portions of registrant's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 20, 1996 (Part III). PART I Item 1. Business General - -------- TrustCo Bank Corp NY ("TrustCo") is a one-bank holding company having its principal place of business at 320 State Street, Schenectady, New York 12305. TrustCo was incorporated under the laws of New York in 1981 to acquire all of the outstanding stock of Trustco Bank, National Association, formerly known as Trustco Bank New York, and prior to that The Schenectady Trust Company. Following receipt of necessary regulatory approvals, TrustCo commenced business on July 1, 1982. In 1991, TrustCo acquired, for a combination of cash and TrustCo common stock, Home & City Savings Bank ("Home & City") located in Albany, New York. At the time of the acquisition, Home & City operated 16 branches, and had total assets of approximately $ 848 million, deposits of $ 750 million and shareholders' equity of $ 93 million. Through policy and practice, TrustCo continues to emphasize that it is an equal opportunity employer. There were 434 full-time equivalent employees at year-end 1995. TrustCo had 5,092 shareholders of record as of December 31, 1995, and the closing price of the stock at that date was $22.125. Bank Subsidiary - ---------------- On November 16, 1994 TrustCo initiated the process to convert its banking subsidiary, Trustco Bank New York, a New York state chartered trust company, to a national banking association operating under the name Trustco Bank, National Association (the Bank ). The conversion was undertaken to minimize duplicative federal/state compliance issues. The conversion became effective on February 1, 1995. The Bank is a national banking association engaged in a general commercial banking business serving individuals, partnerships, corporations, municipalities and governments of New York. Trustco operates 23 automatic teller machines and 47 banking offices in Albany, Columbia, Greene, Rensselaer, Saratoga, Schenectady, Warren, and Washington counties of New York State. The largest part of such business consists of accepting deposits and making loans and investments. The Bank provides a wide range of both personal and business banking services. The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation to the extent permitted by law. The Bank accounted for substantially all of TrustCo's 1995 consolidated net income and average assets. The trust department of the Bank serves as executor of estates and trustee of personal trusts, provides estate planning and related advice, provides custodial services and acts as trustee for various types of employee benefit plans and corporate pension and profit sharing trusts. The aggregate market value of the assets under trust, custody or management was approximately $777 million as of December 31, 1995. The daily operations of the Bank remain the responsibility of its Board of Directors and officers, subject to the overall supervision by TrustCo. TrustCo derives most of its income from dividends paid to it by its subsidiary Bank. The accounts of the Bank are included in TrustCo's consolidated financial statements. ORE Subsidiary - --------------- During 1993, TrustCo created ORE Subsidiary Corp., a New York corporation, to hold and manage certain foreclosed properties acquired by the Bank. The accounts of this subsidiary are included in TrustCo's consolidated financial statements. Competition - ------------- TrustCo faces strong competition in its market areas, both in attracting deposits and making loans. The Bank's most direct competition for deposits, historically, has come from other commercial banks, savings associations and credit unions, which are located, or have branches in those areas. The Bank also faces competition for deposits from national brokerage houses, short-term money market funds, and other corporate and government securities funds. Factors affecting the acquisition of deposits include pricing, office locations and hours of operation, the variety of deposit accounts offered, and the quality of customer service provided. Competition for loans has been especially keen during the last five years. Commercial banks, local thrift institutions, traditional mortgage brokers affiliated with local, but nationally franchised real estate brokers, are all active and aggressive competitors. The Bank competes in the environment by providing a full range of financial services based on a tradition of financial strength and integrity dating from its inception. It competes for loans, principally through the interest rates and loan fees it charges, and the efficiency and quality of services it provides to borrowers. TrustCo operates in a number of communities where the competition ranges from other locally based commercial and savings banks, to branches of the largest financial institutions in the United States. In the Capital District area of New York State, TrustCo's principal competitors are local operations of super regional banks, branch offices of money center banks, and locally based commercial and savings banks. TrustCo is the largest commercial bank headquartered in the Capital District area. Supervision and Regulation - ---------------------------- Banking is a highly regulated industry, with numerous federal and state laws and regulations governing the organization and operation of banks and their affiliates. As a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "Act"), TrustCo is regulated and examined by the Board of Governors of the Federal Reserve System (the "Board"). The Act requires as a national banking association, TrustCo to obtain prior Board approval for bank and non-bank acquisitions and restricts the business operations permitted to TrustCo. The Bank is subject to regulation and examination by the Office of the Comptroller of the Currency. Virtually all aspects of TrustCo's and the Bank's business are subject to regulation and examination by the Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Most of TrustCo's revenues consist of cash dividends paid to TrustCo by its subsidiary Bank, payment of which is subject to various regulatory limitations. (Note 1 of the consolidated financial statements contained in TrustCo s Annual Report to Shareholders for the year ended December 31, 1995, which appears on pages 32 and 33 thereof and contains information concerning restrictions of TrustCo s ability to pay dividends, is hereby incorporated by reference.) In addition, the Federal Deposit Insurance Corporation and the Board have established guidelines with respect to the maintenance of appropriate levels of capital by a bank holding company under their jurisdictions. Compliance with the standards set forth in such guidelines could also limit the amount of dividends which a bank or a bank holding company may pay to its shareholders. The banking industry is also affected by the monetary and fiscal policies of the federal government, including the Board, which exerts considerable influence over the cost and availability of funds obtained for lending and investing. Proposals to change various laws and regulations governing the operation and taxation of banks, bank holding companies and financial institutions are frequently raised in Congress and before various federal and state regulatory authorities. Recently, on September 29, 1994 the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was enacted which permits, beginning one year from date of enactment, bank holding companies to acquire banks in any state (subject to state and nationwide deposit limitations) and for full interstate branching commencing June 1, 1997 (subject to an individual state's earlier decision to opt out of or opt into the interstate branching provision). Foreign Operations - -------------------- Neither TrustCo nor the Bank engage in material operations in foreign countries or have any outstanding loans to foreign debtors. Statistical Information Analysis - -------------------------------- The "Management's Discussion and Analysis" on pages 5 through 23 of TrustCo's Annual Report to Shareholders for the year ended December 31, 1995, which contains a presentation and discussion of statistical data relating to TrustCo, is hereby incorporated by reference. This information should not be construed to imply any conclusion on the part of the management of TrustCo that the results, causes or trends indicated therein will continue in the future. The nature and effects of governmental monetary policy, supervision and regulation, future legislation, inflation and other economic conditions and many other factors which affect interest rates, investments, loans, deposits and other aspects of TrustCo's operations are extremely complex and could make historical operations, earnings, assets and liabilities not indicative of what may occur in the future. Item 2. Properties TrustCo's executive offices are located at 320 State Street, Schenectady, New York, 12305. The Bank operates 47 offices, of which 20 are owned and 27 are leased from others. The asset value of these properties, when considered in the aggregate, are not material to the operation of TrustCo. In the opinion of management, the physical properties of TrustCo and the Bank are suitable and adequate and are being fully utilized. Item 3. Legal Proceedings The nature of TrustCo's business generates a certain amount of litigation against TrustCo and its subsidiaries involving matters arising in the ordinary course of business. In the opinion of management of TrustCo, there are no proceedings pending to which TrustCo or either of its subsidiaries is a party, or of which its property is the subject which, if determined adversely to TrustCo or such subsidiaries, would be material in relation to TrustCo's consolidated stockholders' equity and financial condition. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of TrustCo The following is a list of the names and ages of the executive officers of TrustCo and their business history for the past five years: Year First Became Name, Age and Principal Occupations Executive Position Or Employment Since of With TrustCo January 1, 1990 TrustCo - ----------------------- -------------------------- ------- Robert A. McCormick, 59, President and Chief 1984 President and Chief Executive Officer, TrustCo Executive Officer Bank Corp NY. President and Chief Executive Officer, Trustco Bank, National Association. Robert T. Cushing, 40, Vice President and Chief 1994 Vice President and Financial Officer, TrustCo Chief Financial Officer Bank Corp NY since 1994. Senior Vice President and Chief Financial Officer, Trustco Bank, National Association since 1994. Partner, KPMG Peat Marwick LLP (1978-1994). Nancy A. McNamara 46, Vice President, TrustCo Bank 1992 Vice President Corp NY since 1992. Senior Vice President, Trustco Bank, National Association since 1988. Director of TrustCo Bank Corp NY and Trustco Bank, National Association since December 1991. William F. Terry, 54, Secretary, TrustCo Bank Corp 1990 Secretary NY since 1990. Senior Vice President, Trustco Bank, National Association since 1987. Secretary, Trustco Bank, National Association since 1990. Ralph A. Pidgeon, 53 Vice President, TrustCo Bank 1995 Vice President Corp NY since 1995. Senior Vice President, Trustco Bank, National Association since 1982. There are no family relationships among any of the named persons. Each executive officer is elected by the Board of Directors to serve until election of his or her successor. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The inside front cover of TrustCo's Annual Report to Shareholders for the year ended December 31, 1995, is incorporated herein by reference. The closing price for the Corporation's common stock on December 31, 1995, was $22.125. Item 6. Selected Financial Data Page 21 of TrustCo's Annual Report to Shareholders for the year ended December 31, 1995, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Pages 5 through 23 of TrustCo's Annual Report to Shareholders for the year ended December 31, 1995, are incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The financial statements, together with the report thereon of KPMG Peat Marwick LLP on pages 26 through 41 of TrustCo's Annual Report to Shareholders for the year ended December 31, 1995, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of Registrant The information under the captions "Information on TrustCo Directors and Nominees" and "Information on TrustCo Executive Officers Not Listed Above" on pages 3 through 5, and "Compliance With Section 16(a) Of The Securities Exchange Act Of 1934 " on page 19, of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 20, 1996, is incorporated herein by reference. The required information regarding TrustCo's executive officers is contained in PART I in the item captioned "Executive Officers of TrustCo." Item 11. Executive Compensation The information under the captions "TrustCo and Trustco Bank Executive Officer Compensation" and "TrustCo Retirement Plans" on pages 6 through 10 of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 20, 1996, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information under the captions "Information on TrustCo Directors and Nominees,""Information on TrustCo Executive Officers Not Listed Above," on pages 3 through 5 and "Ownership Of TrustCo Common Stock By Certain Beneficial Owners" on page 18 of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 20, 1996, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information under the caption "Transactions with TrustCo and Trustco Bank Directors, Officers and Associates" on page 18 of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 20, 1996, is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K The following financial statements of TrustCo and its consolidated subsidiaries, and the accountants' report thereon are incorporated herein by reference. Consolidated Statements of Condition--December 31, 1995 and 1994. Consolidated Statements of Income--Years Ended December 31, 1995, 1994 and 1993. Consolidated Statements of Changes in Shareholders' Equity--Years Ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements. Financial Statement Schedules Not Applicable. All required schedules for TrustCo and its subsidiaries have been included in the consolidated financial statements or related notes thereto. The following exhibits are incorporated herein by reference:* Reg S-K Exhibit No. Description __________ _________________________________________________ 3(a) Amended and Restated Certificate of Incorporation of TrustCo. 3(b) Amended and Restated Bylaws of TrustCo. 10(a) Employment Agreement dated January 1, 1992 and Amendment No. 1 dated November 16, 1993, among TrustCo, the Bank and Robert A. McCormick. Amendment No. 2 dated September 1, 1994, and Amendment No. 3 dated February 13, 1995, among TrustCo, the Bank and Robert A. McCormick. 10(d) Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Robert T. Cushing. 10(f) Restated Employment Agreements dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Nancy A. McNamara. 10(g) Restated Employment Agreements dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Ralph A. Pidgeon. 10(h) Restated Employment Agreements dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and William F. Terry. 10(j) Restated 1985 TrustCo Bank Corp NY Stock Option Plan. 10(k) TrustCo Bank Corp NY Directors Stock Option Plan. 10(o) 1995 TrustCo Bank Corp NY Stock Option Plan. ________________ *The exhibits included under Exhibit 10 constitute all management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. The following exhibits are filed herewith:* Reg S-K Exhibit No. Description ___________ _______________________________________________ 10(b) Amendment No. 4 dated December 1, 1995, to the Employment Agreement dated January 1, 1992 among TrustCo, the Bank and Robert A. McCormick. 10(c) Schedule A updating the Employment Agreement dated January 1, 1992 among TrustCo, the Bank and Robert A. McCormick. 10(e) Schedule A updating the Employment Agreement dated June 21, 1994, among TrustCo, the Bank and Robert T. Cushing. 10(i) Schedules A updating the Restated Employment Agreements dated June 21, 1994, among TrustCo the Bank and each of Nancy A. McNamara, Ralph A. Pidgeon and William F. Terry. 10(l) Restated Trustco Bank Supplemental Retirement Plan, dated June 24, 1994, Amendment No. 1, dated February 13, 1995 and Amendment No. 2, dated December 1, 1995. 10(m) Restated Agreement for Supplemental Retirement Benefits for Robert A. McCormick, dated June 24, 1994 and Amendment No. 1 dated December 1, 1995. 10(n) Trustco Bank Executive Officer Incentive Plan dated December 22, 1993, Amendment No. 1, dated October 18, 1994, Amendment No. 2, dated February 13, 1995 and Amendment No. 3, dated December 1, 1995. 11 Computation of Net Income Per Common Share. 13 Annual Report to Security Holders of TrustCo for the year ended December 31, 1995. 21 List of Subsidiaries of TrustCo. 23 Independent Auditors' Consent of KPMG Peat Marwick LLP. 24 Power of Attorney. 27 Financial Data Schedules. 99 Independent Auditors' Report of KPMG Peat Marwick LLP. ________________ *The exhibits included under Exhibit 10 constitute all management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. Reports on Form 8-K: On October 17, 1995, TrustCo filed a Current Report on Form 8-K reporting the third quarter 1995 results. On January 19, 1996, TrustCo filed a Current Report on Form 8-K reporting the fourth quarter and year-end December 31, 1995, results. On February 23, 1996, TrustCo filed a Current Report on Form 8-K reporting the declaration of a cash dividend. On March 22, 1996, TrustCo filed a Current Report on Form 8- K reporting an offer to purchase ALBANK Financial Corporation by TrustCo Bank Corp NY. SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TrustCo Bank Corp NY By/s/Robert A. McCormick Robert A. McCormick President and Chief Executive Officer (Principal Executive Officer) By/s/Robert T. Cushing Robert T. Cushing Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 25 1996 . Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date * Director March 25 1996 Barton A. Andreoli * Director March 25, 1996 Lionel O. Barthold * Director March 25, 1996 M. Norman Brickman * Director March 25, 1996 Charles W. Carl, Jr. * Director March 25, 1996 Robert A. McCormick * Director March 25, 1996 Nancy A. McNamara * Director March 25, 1996 Dr. John S. Morris * Director March 25, 1996 Dr. James H. Murphy * Director March 25, 1996 Richard J. Murray, Jr. * Director March 25, 1996 Kenneth C. Petersen * Director March 25, 1996 William D. Powers * Director March 25, 1996 William J. Purdy /s/William F. Terry Director March 25, 1996 William F. Terry * Director March 25, 1996 Philip J. Thompson By/s/William F. Terry *William F. Terry, as Agent Pursuant to Power of Attorney EXHIBIT INDEX Reg S-K Item 601 Exhibit No. Exhibit __________ _________________________________________________ 3(a) Amended and Restated Certificate of Incorporation of TrustCo filed as Exhibit 3(i) to TrustCo Bank Corp NY s Annual Report on Form 10-K (File No. 000-10592) for the fiscal year ended December 31, 1993, is incorporated herein by reference. 3(b) Amended and Restated Bylaws of TrustCo, with amendments through February 21, 1995, filed as Exhibit 3(ii) to TrustCo Bank Corp NY's Annual Report on Form 10-K(file No. 000-10592) for the fiscal year ended December 31, 1994, is incorporated herein by reference. 10(a) Employment Agreement dated January 1, 1992 and, Amendment No. 1 dated November 16, 1993, among TrustCo, the Bank and Robert A. McCormick, filed as Exhibit 10(a); and Amendment No. 2 dated September 1, 1994, and Amendment No. 3 dated February 13, 1995, to the Employment Agreement dated November 16, 1993 among TrustCo, the Bank and Robert A. McCormick, filed as Exhibit 10(b) to TrustCo Bank Corp NY's Annual Report on Form 10-K (file No. 000-10592) for the fiscal year ended December 31, 1994, is incorporated herein by reference. 10(b) Amendment No. 4 dated December 1, 1995, to the Employment Agreement dated January 1, 1992 among TrustCo, the Bank and Robert A. McCormick. 10(c) Schedule A updating the Employment Agreement dated January 1, 1992 among TrustCo, the Bank and Robert A. McCormick. 10(d) Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Robert T. Cushing filed as Exhibit 10(c) to TrustCo Bank Corp NY's Annual Report on Form 10-K (file No. 000-10592) for the fiscal year ended December 31, 1994, is incorpor- ated herein by reference. 10(e) Schedule A updating the Employment Agreement dated June 21, 1994, among TrustCo, the Bank and Robert T. Cushing. EXHIBIT INDEX (continued) Reg S-K Item 601 Exhibit No. Exhibit __________ ____________________________________________ 10(f) Restated Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Nancy A. McNamara, filed as. Exhibit 10(d) to TrustCo Bank Corp NY's Annual Report on Form 10-K (file No. 000-10592) for the fiscal year ended December 31, 1994, is incorporated herein by reference. 10(g) Restated Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Ralph A. Pidgeon, filed as. Exhibit 10(f) to TrustCo Bank Corp NY's Annual Report on Form 10-K (file No. 000-10592) for the fiscal year ended December 31, 1994, is incorporated herein by reference. 10(h) Restated Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and William F. Terry, filed as. Exhibit 10(e) to TrustCo Bank Corp NY's Annual Report on Form 10-K (file No. 000-10592) for the fiscal year ended December 31, 1994, is incorporated herein by reference. 10(i) Schedules A updating the Restated Employment Agreements dated June 21, 1994, among TrustCo, the Bank and each of Nancy A. McNamara, Ralph A. Pidgeon, and William F. Terry. 10(j) Restated 1985 TrustCo Bank Corp NY Stock Option Plan as amended and restated effective July 1, 1994, filed as Exhibit 10(h) to TrustCo Bank Corp NY s Annual Report on Form 10-K (File No. 000-10592)for the fiscal year ended December 31, 1994, is incorporated herein by reference. 10(k) TrustCo Bank Corp NY Directors Stock Option Plan filed as Exhibit 10(g) to TrustCo Bank Corp NY s Annual Report on Form 10-K (File No. 000-10592) for the fiscal year ended December 31, 1993, is incorporated herein by reference. 10(l) Restated Trustco Bank Supplemental Retirement Plan, dated June 24, 1994, Amendment No. 1, dated February 13, 1995 and Amendment No. 2, dated December 1, 1995. 10(m) Restated Agreement for Supplemental Retirement Benefits for Robert A. McCormick, dated June 24, 1994 and Amendment No. 1 dated December 1, 1995. EXHIBIT INDEX (continued) Reg S-K Item 601 Exhibit No. Exhibit __________ ____________________________________________ 10(n) Trustco Bank Executive Officer Incentive Plan dated December 22, 1993, Amendment No. 1, dated October 18, 1994, Amendment No. 2, dated February 13, 1995 and Amendment No. 3, dated December 1, 1995. 10(o) 1995 TrustCo Bank Corp NY Stock Option Plan, dated June 20, 1995, filed on Form S-8 (file No. 33-60409) dated June 20, 1995, is incorporated herein by reference. 11 Computation of Net Income Per Common Share. 13 Annual Report to Security Holders of TrustCo for the year ended December 31, 1995. GRAPHICS APPENDIX Cross References to Page of Omitted Charts Annual Report ______________________________________________ 1 Net Interest Margin............5 2 Allowance for Loan Losses.....15 3 Efficiency Ratio..............19 4 Dividends Per Share...........20 The charts listed above were omitted from the EDGAR version of Exhibit 13; however, the information depicted in the charts was adequately discussed and/or displayed in the tabulation formation within Management's Discussion and Analysis section of the Annual Report. 21 List of Subsidiaries of TrustCo. 23 Independent Auditors' Consent of KPMG Peat Marwick LLP. 24 Power of Attorney. 27 Financial Data Schedules. 99 Independent Auditors' Report of KPMG Peat Marwick LLP. Exhibit 10(b) AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT BETWEEN TRUSTCO BANK, NATIONAL ASSOCIATION AND TRUSTCO BANK CORP NY AND ROBERT A. McCORMICK WHEREAS, Trustco Bank, National Association (herein referred to as the "Company") and TrustCo Bank Corp NY (herein referred to as "TrustCo") entered into an Employment Agreement (herein referred to as the "Agreement") with Robert A. McCormick (herein referred to as the "Executive"); and WHEREAS, the Company, TrustCo and the Executive desire to amend the Agreement effective as of January 1, 1995; NOW, THEREFORE, effective January 1, 1995, the Agreement is hereby amended in the following respect: I. Paragraph 6 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof: "6. Termination of Employment. "In the event there is a Termination (including termination of employment or any other event included in Section 7 herein) of the Executive for any reason other than for good cause (as hereinafter defined) or retirement, the Executive shall receive, upon his Termination with either of the Companies, the Termination Benefits set forth hereinbelow. The Executive's Termination for good cause shall be limited to the Executive's having committed a felony, or an act intentionally against either of the Companies which cause either Company material injury, or a final determination by a court that the Executive has committed a material breach of his duties and responsibilities in connection with rendering services to either of the Companies pursuant to this Agreement." IN WITNESS WHEREOF, the Company, TrustCo and the Executive have caused this Amendment No. 4 to be executed this 1st day of December, 1995. TRUSTCO BANK, NATIONAL TRUSTCO BANK CORP NY ASSOCIATION By:/s/ William F. Terry By:/s/ William F. Terry _______________________ ________________________ Title: Secretary Title: Secretary ____________________ ____________________ /s/ Robert A. McCormick __________________________ Exhibit 10(c) Schedule A to Agreement among Companies and Robert A. McCormick Calendar Year Annual Salary Approval of Companies 1992 $550,000 1993 $650,000 /s/William F. Terry 1994 $700,000 /s/William F. Terry 1995 $720,000 /s/William F. Terry 1996 $750,000 /s/William F. Terry TRUSTCO BANK CORP NY BY/s/M. Norman Brickman _____________________ TRUSTCO BANK NEW YORK BY/s/M. Norman Brickman _____________________ AGREEMENT OF EXECUTIVE BY/S/Robert A. McCormick ______________________ Robert A. McCormick Exhibit 10(e) Schedule A to Agreement among Companies and Robert T. Cushing Calendar Year Annual Salary Approval of Companies _______________ _______________ _______________________ 1994 230,000.00 /s/Robert A. McCormick 1995 240,000.00 /s/Robert A. McCormick 1996 260,000.00 /s/Robert A. McCormick TRUSTCO BANK CORP NY By:/s/Robert A. McCormick ___________________________ President and Chief Executive Officer TRUSTCO BANK NEW YORK By:/s/Robert A. McCormick ___________________________ President and Chief Executive Officer AGREEMENT OF EXECUTIVE /s/Robert T. Cushing ________________________ Robert T. Cushing Exhibit 10(i) Schedule A to Agreement among Companies and Nancy A. McNamara Calendar Year Annual Salary Approval of Companies _______________ _______________ _______________________ 1992 $160,000.00 /s/Robert A. McCormick 1993 200,000.00 /s/Robert A. McCormick 1994 230,000.00 /s/Robert A. McCormick 1995 240,000.00 /s/Robert A. McCormick 1996 260,000.00 /s/Robert A. McCormick TRUSTCO BANK CORP NY By:/s/Robert A. McCormick ___________________________ President and Chief Executive Officer TRUSTCO BANK NEW YORK By:/s/Robert A. McCormick ___________________________ President and Chief Executive Officer AGREEMENT OF EXECUTIVE /s/Nancy A. McNamara _____________________ Nancy A. McNamara Note: Schedule A as shown here for Nancy A. McNamara, is representative of Schedules A for William F. Terry and Ralph A. Pidgeon. Exhibit 10(l) RESTATEMENT OF TRUSTCO BANK SUPPLEMENTAL RETIREMENT PLAN ___________________________________________ WHEREAS, Trustco Bank New York, a New York corporation (the "Corporation") established effective as of November 21, 1989, the Trustco Bank Supplemental Retirement Plan (the "Plan"); and WHEREAS, the Corporation desires to amend and restate the Plan effective as of January 1, 1994; NOW, THEREFORE, effective as of January 1, 1994, the Plan is hereby amended and restated in its entirety so that it shall read as follows: ARTICLE I ___________ DEFINITIONS ___________ Except as otherwise specified herein, all capitalized terms shall have the same meanings as such terms have under the Retirement Plan of Trustco Bank New York. SECTION 1.1. "Actuarial Equivalent" means equality in value of the aggregate amounts expected to be received under different forms of payment, based on the UP-1984 Mortality Table, with 7 1/2% interest. When determining the amount of a Participant's lump sum distribution or the present value of a Participant's Accrued Benefit under the Retirement Plan, the interest rates used to make an Actuarial Equivalent determination are the immediate and deferred annuity rates the Pension Benefit Guaranty Corporation ("PBGC") would use for a trusteed single employer plan to value a benefit upon termination of an insufficient trusteed single-employer plan. In the event of a distribution made during a calendar year, the applicable PBGC interest rates for the month of January preceding the distribution shall be used to make an Actuarial Equivalent determination. SECTION 1.2. "Board of Directors" means the Board of Directors of Trustco Bank New York. SECTION 1.3. "Cause" means conduct of a Participant which is finally adjudged to be knowingly fraudulent, deliberately dishonest or willful misconduct. The Committee shall have sole and uncontrolled discretion with respect to the application of the provisions of this Section 1.3 and any determination shall be conclusive and binding upon the Participant and all other persons. SECTION 1.4. "Change in Control" means any of the following events: (a) any individual, corporation (other than the Corporation), partnership, trust, association, pool, syndicate, or any other entity or any group of persons acting in concert becomes the beneficial owner, as that concept is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, of securities of the Corporation possessing twenty percent (20%) or more of the voting power for the election of Directors of the Corporation; (b) there shall be consummated any consolidation, merger or other business combination involving the Corporation or the securities of the Corporation in which holders of voting securities of the Corporation immediately prior to such consummation own, as a group, immediately after such consummation, voting securities of the Corporation (or, if the Corporation does not survive such transaction, voting securities of the corporation surviving such transaction) having less than fifty percent (50%) of the total voting power in an election of Directors of the Corporation (or such other surviving corporation); (c) during any period of two consecutive years, individuals who at the beginning of such period constitute the Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Corporation's shareholders, of each new Director of the Corporation was approved by a vote of at least two- thirds of the Directors of the Corporation then still in office who were Directors of the Corporation at the beginning of any such period; (d) removal by the stockholders of all or any of the incumbent Directors of the Corporation other than a removal for Cause; or (e) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (on a consolidated basis) to a party which is not controlled by or under common control with the Corporation. SECTION 1.5. "Code" means the Internal Revenue Code of 1986, as amended. SECTION 1.6. "Committee" means the committee appointed by the Board of Directors to administer the Plan. SECTION 1.7. "Corporation" means Trustco Bank New York. SECTION 1.8. "Credited Years of Service" means (i) as of a Determination Date, a Participant's Years of Benefit Service, as calculated under the Retirement Plan without taking into account the maximum limit on Years of Benefit Service set forth in the Retirement Plan, and (ii) as of a Participant's Normal Retirement Date, a Participant's Years of Benefit Service, as calculated under the Retirement Plan without taking into account the maximum limit on Years of Benefit Service set forth in the Retirement Plan, plus the number of Plan Years (and fractions thereof) from the Determination Date to his Normal Retirement Date. SECTION 1.9. "Determination Date" means the date of termination of employment or the date the Corporation elects to distribute the present value of the Supplemental Retirement Benefit of the Participant or Beneficiary in a single lump sum. SECTION 1.10. "Earnings" means the calendar year earned income, wages, salaries, and fees for professional services, and other amounts received for personal services actually rendered in the course of employment with the Corporation (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses, and amounts paid under the Trustco Bank Executive Officer Incentive Plan and the Executive Incentive Plan of Trustco Bank New York) paid or accrued to a Participant by the Company and excluding the following: (a) contributions by the Corporation to a plan of deferred compensation which are not included in a Participant's gross income for the taxable years in which contributed or contributions by the Corporation under a simplified employee pension plan to the extent the contributions are deductible by the Participant, or any distributions from a plan of deferred compensation; (b) amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by a Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; (d) other amounts which received special tax benefits, or contributions made by the Corporation (whether or not under a salary reduction agreement) toward the purchase of an annuity described in Code Section 403(b) (whether or not the amounts are actually excludable from the gross income of a Participant); and (e) amounts paid from any supplemental retirement plan maintained by the Corporation. Earnings includes any amounts contributed by the Corporation or any related employer on behalf of a Participant pursuant to a salary reduction agreement which are not includable in the gross income of a Participant pursuant to Code Section 125, 401(a)(8), 401(k), 402(h) or 403(b). SECTION 1.11. "Employee" means any person, except Robert A. McCormick, who is employed as an executive officer by the Corporation or any of its subsidiaries. SECTION 1.12. "Final Average Earnings" as of any Determination Date shall be equal to the average of a Participant's highest five (5) consecutive Plan Years of Earnings out of the ten (10) consecutive Plan Years immediately preceding the Determination Date. Provided, however, if a Participant's Earnings for the Plan Year in which his employment with the Corporation terminates for any reason is greater than his Earnings during the first Plan Year of the averaging period to be used, the first Plan Year Earnings shall be disregarded and the Earnings of the Participant during the Plan Year in which his employment terminates shall be taken into account. SECTION 1.13. "Normal Retirement Date" means the first day of the month coinciding with or next following the month in which a Participant attains age 65. SECTION 1.14. "Participant" means any Employee who is selected by the Board of Directors for participation in the Plan as provided in Article II. SECTION 1.15. "Plan" means the Trustco Bank Supplemental Retirement Plan as set forth herein and as the same may be amended from time to time. SECTION 1.16. "Plan Year" means the twelve (12) month period beginning on any January 1 and ending on the following December 31. SECTION 1.17. "Primary Social Security Benefit" means the annual amount that would be available to a Participant at social security retirement age under the provisions of Title II of the Social Security Act without regard to any changes in the wage base or benefit levels that take effect after that date, based on the assumption that he will continue to receive until social security retirement age compensation which would be treated as wages for purposes of the Social Security Act at the same rate as he received such compensation at the time of retirement, death, disability or termination of employment if such event precedes his attainment of social security retirement age. SECTION 1.18 "Projected Accrued Benefit" under the Retirement Plan means the Participant's Accrued Benefit under the Retirement Plan as of his Normal Retirement Date, based on Projected Earnings, Projected Final Average Earnings, Projected Primary Social Security Benefit, and Projected Years of Service. SECTION 1.19. "Projected Earnings" means the estimated annual earnings of a Participant for a future Plan Year and is equal to Earnings, excluding bonus, for the year ending on the Valuation Date increased by (a) the assumed future bonus payments, and (b) the assumed future cost of living increases for such year. The rate of assumed future bonus payments and the rate of assumed future cost of living increases shall be determined as of each Valuation Date by the Committee. SECTION 1.20. "Projected Final Average Earnings" means the average of the highest five (5) consecutive Plan Year's Projected Earnings out of the ten (10) consecutive Plan Years immediately preceding the Normal Retirement Date. If the Participant is within ten (10) years of his Normal Retirement Date, his actual Earnings, including bonuses, will be used for any Plan Year prior to the Valuation Date. Provided, however, if the Participant's Earnings for the Plan Year in which his employment with the Corporation terminates for any reason is greater than his Earnings during the first Plan Year of the averaging period to be used, the first Plan Year Earnings shall be disregarded and the Earnings of the Participant during the Plan Year in which his employment terminates shall be taken into account. SECTION 1.21. "Projected Primary Social Security Benefit" means the Participant's estimated Primary Social Security Benefit as of the January 1st of the year during which he attains the Social Security retirement age assuming that the Social Security wage base and the Social Security cost of living increases are equal to the assumed future cost of living increases used for projecting earnings. SECTION 1.22. "Projected Total Retirement Benefit" means the Total Retirement Benefit of a Participant as of his Normal Retirement Date, based on Projected Earnings, Projected Final Average Earnings, Projected Primary Social Security Benefits, and Projected Years of Service. SECTION 1.23. "Projected Years of Service" means the completed Credited Years of Service at the Participant's Normal Retirement Date assuming the Participant continues to work forty (40) hours per week from the Valuation Date to his Normal Retirement Date. SECTION 1.24. "Retirement Plan" means the Retirement Plan of Trustco Bank New York. SECTION 1.25. "Supplemental Account Balance" means a bookkeeping account maintained by the Corporation which reflects a Participant's benefit under the Plan as calculated under Article III herein. SECTION 1.26. "Supplemental Retirement Benefit" means the benefit calculated in accordance with Article III of the Plan. SECTION 1.27. "Total Retirement Benefit" for an individual who is a Participant in the Plan on December 31, 1993 means, as of any Determination Date, the greatest of the following formulas: (a) A career average pension equal to, for each year of employment: (i) 1.1% of the first $5,000 of Earnings, plus, (ii) 2.0% of Earnings in excess of $5,000, or (b) A pension equal to: (i) 1% times Final Average Earnings times Credited Years of Service at Normal Retirement Date up to a maximum of 40 years, times (ii) Credited Years of Service as of the Determination Date divided by Credited Years of Service at Normal Retirement Date, or (c) A pension equal to: (i) 2% times Final Average Earnings times Credited Years of Service at Normal Retirement Date up to a maximum of 40 years, less (ii) 2% times the Primary Social Security Benefit times Credited Years of Service at Normal Retirement Date up to a maximum of 25 years, times (iii) Credited Years of Service at the Determination Date divided by Credited Years of Service at Normal Retirement Date, or (d) A pension equal to: (i) the Accrued Benefit under the Retirement Plan as of December 31, 1988 which is not limited by the maximum benefit limit under Code Section 415 and the maximum compensation limit under Code Section 401(a)(17), plus (ii) 1.25% times Final Average Earnings times credited Years of Service after January 1, 1989 up to a maximum of X years at the Determination Date, plus (iii) .65% times Final Average Earnings in excess of the Covered Compensation level times Credited Years of Service after January 1, 1989 up to a maximum of X years at the Determination Date. For purposes of subparagraphs (ii) and (iii), X is equal to 40 years minus the Credited Years of Service at January 1, 1989. For an individual who becomes a Participant in the Plan on or after January 1, 1994, "Total Retirement Benefit" means the formula described in subparagraph (d) of this Section 1.27. SECTION 1.28. "Valuation Date" means December 31 of each year. ARTICLE II __________ PARTICIPATION _____________ SECTION 2.1. Participation in the Plan shall be limited to a select group of Employees of the Corporation and its subsidiaries who are management or highly compensated Employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended, and who have been selected by the Board of Directors to participate in the Plan; provided, however, that Robert A. McCormick shall not be a Participant in the Plan. SECTION 2.2. Each Employee selected by the Board of Directors to participate in the Plan shall indicate his agreement to the terms of the Plan by executing a Participation Agreement, a form of which is attached hereto as Exhibit A. Subject to Article VI, an Employee and the Corporation may agree to vary the terms of the Plan as to such Employee. ARTICLE III ___________ BENEFITS __________ SECTION 3.1. Benefit Amount. Except in the case of termination for Cause, in which event no benefit shall be payable under the Plan, if a Participant's employment with the Corporation and all of its subsidiaries is terminated (a) by death or Disability, (b) after the Participant has completed five (5) years of Vesting Service, or (c) after the Participant has satisfied the requirements for early retirement under the Retirement Plan, the Participant will be entitled to a benefit in an amount equal to his Supplemental Account Balance payable at such time and in such manner as provided herein. SECTION 3.2. Supplemental Account Balance at December 31, 1993. The Participant's Supplemental Account Balance at December 31, 1993, is equal to the lump sum Actuarial Equivalent of the Participant's Supplemental Retirement Benefit payable under the provisions of the Plan in effect on December 31, 1993. The Actuarial Equivalent shall be determined based on the annual Supplemental Retirement Benefit beginning on the Participant's Normal Retirement Date but based on his Final Average Earnings and Credited Years of Service as of December 31, 1993. SECTION 3.3. Redetermination of Supplemental Account Balance on or Before Normal Retirement Date. The Participant's Supplemental Account Balance shall be redetermined on each Valuation Date and on his Normal Retirement Date. (a) The Supplemental Account Balance on any Valuation Date after December 31, 1993 is equal to: (i) the Supplemental Account Balance as of the immediately preceding Valuation Date, plus (ii) the Account Balance Increment for the Plan Year ending on the Valuation Date; less (iii) the amount of his Supplemental Retirement Benefit distributed under the Plan pursuant to Section 4.4, or its successor, since the immediately preceding Valuation Date. (b) (1) The Account Balance Increment for the Plan Year ending December 31, 1994 shall be determined as of January 1, 1994 and is equal to: (i) the projected Supplemental Account Balance at Normal Retirement Date, measured as of December 31, 1993, minus (ii) the accrued pension expense as determined by the Retirement Plan actuary under the Statement of Financial Accounting Standards No. 87 as of December 31, 1993, divided by (iii) the number of years and months from December 31, 1993 to the Participant's Normal Retirement Date, minus (iv) the Supplemental Account Balance as of December 31, 1993, plus (v) the accrued pension expense as determined by the Retirement Plan actuary under the Statement of Financial Accounting Standards No. 87 as of December 31, 1993. Notwithstanding the above, no Account Balance Increment for the Plan Year ending December 31, 1994 shall be less than zero. (2) The Account Balance Increment for any Plan Year beginning on and after January 1, 1995 and through the Plan Year in which a Participant's Normal Retirement Date occurs shall be determined on the immediately preceding Valuation Date and is equal to: (i) the projected Supplemental Account Balance at Normal Retirement Date, measured as of the immediately preceding Valuation Date, minus (ii) the Supplemental Account Balance as of the immediately preceding Valuation Date, divided by (iii) the number of years and months from the immediately preceding Valuation Date to the Participant's Normal Retirement Date. Notwithstanding the above, no Account Balance Increment for any Plan Year beginning on and after January 1, 1995 shall be less than zero. A portion of the Account Balance Increment constitutes interest which is determined by using the Pension Benefit Guaranty Corporation interest rate in effect as of the first day of the applicable Plan Year. (c) The Participant's projected Supplemental Account Balance at Normal Retirement Date is equal to the lump sum Actuarial Equivalent of: (i) his Projected Total Retirement Benefit, less (ii) the amount of his Projected Accrued Benefit under the Retirement Plan; less (iii) the amount of his Supplemental Retirement Benefit previously distributed under the Plan pursuant to Section 4.4, or its successor. SECTION 3.4. Determination of Supplemental Account Balance After Normal Retirement Date. If a Participant remains in the employment of the Corporation beyond his Normal Retirement Date, his Supplemental Account Balance shall be increased as of each Valuation Date subsequent to his Normal Retirement Date by an amount equal to: (a) the interest on the Supplemental Account Balance as of the immediately preceding Valuation Date (adjusted for any distributions made to the Participant in accordance with Section 4.4 since the immediately preceding Valuation Date) at the Pension Benefit Guaranty Corporation interest rate in effect on the Valuation Date, plus (b) the same percentage of Earnings as is allocated as of such Valuation Date to participants under the Profit Sharing Plan of Trustco Bank New York. For the Valuation Date immediately following the Participant's Normal Retirement Date, his Account Balance Increment shall be the greater of the amount determined under Section 3.3 or the amount determined under this Section 3.4. SECTION 3.5. Monthly Allocation Date. The Supplemental Account Balance on the last day of any month during the Plan Year (the "Monthly Allocation Date") shall be equal to: (i) the Supplemental Account Balance as of the immediately preceding Valuation Date, plus (ii) the Account Balance Increment, times the quotient of the number of months from the immediately preceding Valuation Date to the Monthly Allocation Date, divided by 12. SECTION 3.6. Reduction of Supplemental Account Balance. A Participant's Supplemental Account Balance will be reduced by the amount of any distribution made to the Participant pursuant to Sections 4.3 or 4.4. ARTICLE IV ____________ PAYMENT OF BENEFITS ___________________ SECTION 4.1. Except in the case of termination for Cause, in which event no benefit shall be payable under the Plan, and except as otherwise provided in Sections 4.2 and 9.1, if a Participant's employment with the Corporation and all of its subsidiaries is terminated (a) after the Participant has completed five (5) years of Vesting Service, or (b) after the Participant has satisfied the requirements for early retirement under the Retirement Plan, the Participant will be entitled to his Supplemental Account Balance determined at the next Monthly Allocation Date. SECTION 4.2. If a Participant's employment with the Corporation or one of its subsidiaries is terminated (a) by retirement, (b) by disability or (c) by death, the Participant or his Beneficiary will be entitled to his Supplemental Account Balance determined at the next Valuation Date. SECTION 4.3. The Supplemental Account Balance shall be payable to the Participant or his Beneficiary in the same manner, and at the same time, as benefit payments to such Participant or his Beneficiary under the Retirement Plan or in one lump sum or a series of installments as elected by the Participant or his Beneficiary. SECTION 4.4. Notwithstanding Section 4.3, the Corporation, in its discretion, may at any time elect to distribute to a Participant or his Beneficiary a single lump sum equal to the Supplemental Account Balance as of a date specified by the Corporation. The Actuarial Equivalent of any single lump sum distribution will be included in the amount offset under Section 3.3(c)(iii). ARTICLE V _________ CLAIMS ________ SECTION 5.1. If a claim for benefits under the Plan is denied, the Committee will provide a written notice of the denial setting forth the specific reasons for the denial, a description of any additional material or information necessary for a claimant to perfect a claim, and an explanation of why such material or information is necessary and appropriate information as to the steps to be taken for the claim to be submitted for review. A claimant may request a review of a denial. Such requests should be submitted to the Committee, in writing within 60 days after receipt of the denial notice, stating the reasons for requesting the review. A claimant may review pertinent documents and submit issues and comments in writing. A decision will be made on the review of the denial of a claim not later than 60 days after the Committee's receipt of a request for review unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible but not later than 120 days after receipt of a request for review. The decision on review will be in writing to the claimant and shall include specific reasons for the decision. ARTICLE VI ______________ AMENDMENT AND TERMINATION _____________________________ SECTION 6.1. The Board of Directors may amend or terminate the Plan at any time; provided, however, that no such amendment or termination shall have the effect of reducing a Participant's benefit accrued under the Plan as of the date of such amendment or termination and the Participant shall be entitled to receive such benefit as provided in Article III. ARTICLE VII ____________ ADMINISTRATION ______________ SECTION 7.1. The Plan shall be administered by the Committee in accordance with its terms, for the exclusive benefit of Participants. The powers and duties of the Committee shall be similar to those powers and duties granted to the Plan Administrator of the Retirement Plan. Any interpretation or construction of Plan terms or any determination by the Committee with respect to Plan benefits, etc., shall be conclusive and binding with respect to Participants and all other persons. ARTICLE VIII ____________ MISCELLANEOUS _____________ SECTION 8.1. The benefits provided hereunder will be paid directly from the Corporation out of its general assets and the benefits will not be funded. SECTION 8.2. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall give the Participant the right to be retained in the employ of the Corporation or its subsidiaries or interfere with the right of the Corporation or its subsidiaries to discharge the Participant at any time, nor shall it give the Corporation or its subsidiaries the right to require the Participant to remain in their employ or interfere with the Participant's right to terminate his employment at any time. SECTION 8.3. No benefit payable at any time under this Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment or encumbrance of any kind. SECTION 8.4. All rights hereunder shall be governed by and construed according to the laws of the State of New York, except to the extent such laws are preempted by the laws of the United States of America. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. SECTION 8.5. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind or a fiduciary relationship between the Corporation or its subsidiaries and the Participant or any other person. To the extent that any person acquires the right to receive payment from the Corporation under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Corporation. SECTION 8.6. The terms of this Plan shall be binding upon and inure to the benefit of the Corporation, its successors and assigns, and the Participant and his heirs and legal representatives. SECTION 8.7. If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Corporation or its subsidiaries, then the Corporation may offset such amount so owing against the amount of benefits otherwise distributable. Such determination shall be made by the Committee. SECTION 8.8. The Corporation shall, to the extent permitted by law, have the right to deduct from any payments of any kind with respect to the benefit otherwise due to the Participant any Federal, state or local taxes of any kind required by law to be withheld from such payments. ARTICLE IX ___________ CHANGE OF CONTROL _________________ SECTION 9.1. If a Participant's employment with the Corporation and all of its subsidiaries is terminated within two (2) years after a Change in Control, the Participant will be entitled to a single lump sum payment equal to the Supplemental Account Balance at the next Valuation Date. IN WITNESS WHEREOF, the Corporation has caused this Restatement of the Plan to be executed this 21st day of June, 1994. TRUSTCO BANK NEW YORK By:/s/Robert A. McCormick ___________________________ President & Chief Executive Officer EXHIBIT A TRUSTCO BANK SUPPLEMENTAL RETIREMENT PLAN PARTICIPATION AGREEMENT THIS AGREEMENT is made as of _________________, 19____ between Trustco Bank New York ("Corporation") and ________________________ ("Participant"). The Corporation and the Participant mutually agree as follows: 1. The Participant has received a copy of the Trustco Bank Supplemental Retirement Plan ("Plan") and has read and understands the Plan. 2. By completion of this Agreement, the Participant agrees to comply with the terms of the Plan in all respects. 3. All provisions of the Plan are hereby made a part of this Agreement. 4. The following special provisions are applicable to the Participant's participation in the Plan: ___________________________________________________________ ___________________________________________________________ ___________________________________________________________ ______________________________________________________ TRUSTCO BANK NEW YORK ___________________ By:_________________________________ Date Title:______________________________ ___________________ ____________________________________ Date Participant AMENDMENT NO. 1 TO RESTATEMENT OF TRUSTCO BANK SUPPLEMENTAL RETIREMENT PLAN WHEREAS, Trustco Bank New York (herein referred to as the "Company") maintains the Trustco Bank Supplemental Retirement Plan (herein referred to as the "Plan"); and WHEREAS, by statutory conversion the Company converted from a state chartered trust company to a national bank, and in connection with the conversion the name of the Company changed to Trustco Bank, National Association effective February 1, 1995; and WHEREAS, the Company desires to amend the Plan to reflect the change of its name; NOW, THEREFORE, effective February, 1995, the Plan is hereby amended by changing "Trustco Bank New York" to "Trustco Bank, National Association" in each place where it appears therein. IN WITNESS WHEREOF, the Company has caused this amendment No. 1 to be executed this 13th day of February, 1995. TRUSTCO BANK, NATIONAL ASSOCIATION By: William F. Terry ________________________ Title: Secretary _________________________ AMENDMENT NO. 2 TO TRUSTCO BANK SUPPLEMENTAL RETIREMENT PLAN WHEREAS, Trustco Bank, National Association (herein referred to as the "Corporation") established effective as of November 21, 1989, the Trustco Bank Supplemental Retirement Plan (herein referred to as the "Plan"); and WHEREAS, the Corporation desires to amend the Plan; NOW, THEREFORE, the Plan is hereby amended effective October 17, 1995, except as otherwise stated below, as follows: I. Sections 4.3 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof: SECTION 4.3. The Supplemental Account Balance shall commence to be paid to a Participant or his Beneficiary at such time as benefits become payable to the Participant under the Retirement Plan. The Supplemental Account Balance may be paid in any one of the benefit forms provided under the Retirement Plan or in one lump sum or a series of installments, as elected by the Participant or his Beneficiary." II. Effective October 17, 1995, Section 8.1 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof: "Section 8.1. The Company intends that the Plan constitute an unfunded plan maintained for the purposes of providing deferred compensation for a select group of management or highly compensated employees." IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 2 to be executed this 1st day of December, 1995. TRUSTCO BANK, NATIONAL ASSOCIATION By: /s/ William F. Terry _____________________________ Title: Secretary _____________________________ Exhibit 10(m) RESTATED AGREEMENT FOR SUPPLEMENTAL RETIREMENT BENEFITS FOR ROBERT A. MCCORMICK WHEREAS, TrustCo Bancorp NY, a New York corporation, Trustco Bank New York, a New York corporation ("Corporation"), and Robert A. McCormick, a New York resident (the "Executive") entered into an Agreement For Supplemental Retirement Benefits dated as of January 1, 1992 (the "Agreement"), and WHEREAS, the parties desire to restate the Agreement and to incorporate such other changes as have been deemed necessary and advisable by the parties; NOW, THEREFORE, in consideration of the above, the Agreement is hereby amended and restated in its entirety effective January 1, 1994, so that it shall read as follows: ARTICLE I ___________ DEFINITIONS _____________ Except as otherwise specified herein, all capitalized terms shall have the same meanings as such terms have under the Retirement Plan of Trustco Bank New York ("Trustco Retirement Plan"). 1.1 "Actuarial Equivalent" means equality in value of the aggregate amounts expected to be received under different forms of payment, based on the UP-1984 Mortality Table with 7 1/2% interest. When determining the amount of the Executive's lump sum distribution or the present value of the Executive's Accrued Benefit under the Trustco Retirement Plan, the interest rates used to make an Actuarial Equivalent determination are the immediate and deferred annuity rates the Pension Benefit Guaranty Corporation ("PBGC") would use for a trusteed single employer plan to value a benefit upon termination of an insufficient trusteed single-employer plan. In the event of a distribution made during a calendar year, the applicable PBGC interest rates for the month of January preceding the distribution shall be used to make an Actuarial Equivalent determination. 1.2 "Beneficiary" means any person or persons (including, but not limited to, an estate, a trust, an executor, personal representative, administrator or fiduciary, corporate or otherwise, or the estate or trustee of the testamentary trust or living trust of the Executive) designated by the Executive to receive amounts payable hereunder, after the death of the Executive. In the event that the Executive fails to designate a Beneficiary or if no such designated Beneficiary is living upon the death of the Executive or if for any reason such designation shall be legally ineffective, then the amount which would have been paid to a designated living Beneficiary shall be paid to the trustee of the Executive's living trust if no personal representative is named or to the personal representative of the estate of the Executive. 1.3 "Cause" means the Executive's having committed an act of fraud, embezzlement, or theft constituting a felony, or an act intentionally against the Corporation which causes the Corporation material injury, or a final determination by a court that the Executive has committed a material breach of his duties and responsibilities in connection with rendering services to the Corporation. 1.4 "Change in Control" means any of the following events: (a) any individual, corporation (other than the Corporation), partnership, trust, association, pool, syndicate, or any other entity or any group of persons acting in concert becomes the beneficial owner, as that concept is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, of securities of the Corporation possessing twenty percent (20%) or more of the voting power for the election of Directors of the Corporation; (b) there shall be consummated any consolidation, merger or other business combination involving the Corporation or the securities of the Corporation in which holders of voting securities of the Corporation immediately prior to such consummation own, as a group, immediately after such consummation, voting securities of the Corporation (or, if the Corporation does not survive such transaction, voting securities of the corporation surviving such transaction) having less than fifty percent (50%) of the total voting power in an election of Directors of the Corporation (or such other surviving corporation); (c) during any period of two consecutive years, individuals who at the beginning of such period constitute the Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Corporation's shareholders, of each new Director of the Corporation was approved by a vote of at least two-thirds of the Directors of the Corporation then still in office who were Directors of the Corporation at the beginning of any such period; (d) removal by the stockholders of all or any or the incumbent Directors of the Corporation other than a removal for Cause; or (e) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (on a consolidated basis) to a party which is not controlled by or under common control with the Corporation. 1.5 "Code" means the Internal Revenue Code of 1986, as amended. 1.6 "Committee" means the committee appointed by the Board of Directors of the Corporation to administer the Plan. 1.7 "Determination Date" means the date of termination of employment or the date the Corporation elects to distribute the present value of the Supplemental Retirement Benefit to the Executive or his Beneficiary in a single lump sum. 1.8 "Determination Year" means the twelve (12) month period beginning on any January 1 and ending on the following December 31. 1.9 "Earnings" means the Executive's earned income, wages, salaries, and fees for professional services, and other amounts paid or accrued for personal services actually rendered in the course of employment with the Corporation (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses and amounts paid under the Trustco Bank Executive Officer Incentive Plan and the Executive Incentive Plan of Trustco Bank New York), and excluding the following: (a) contributions by the Corporation to a plan of deferred compensation which are not included in the Executive's gross income for the taxable years in which contributed or contributions by the Corporation under a simplified employee pension plan to the extent the contributions are deductible by the Executive, or any distributions from a plan of deferred compensation; (b) amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the Executive either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; (d) other amounts which received special tax benefits, or contributions made by the Corporation (whether or not under a salary reduction agreement) toward the purchase of an annuity described in Code Section 403(b) (whether or not the amounts are actually excludable from the gross income of the Executive); and (e) amounts paid from any supplemental retirement plan maintained by the Corporation. Earnings includes any amounts contributed by the Corporation or any related employer on behalf of the Executive pursuant to a salary reduction agreement which are not includable in the gross income of the Executive pursuant to Code Section 125, 401(a)(8), 401(k), 402(h) or 403(b). 1.10 "Final Average Earnings" as of any Determination Date shall be equal to: Determination Date Final Average Earnings 12/31/91 to 12/30/92 1991 Earnings 12/31/92 to 12/30/93 1991 + 1992 Earnings, divided by 2 12/31/93 to 12/30/94 1991 + 1992 + 1993 Earnings, divided by 3 12/31/94 to 12/30/95 1991 + 1992 + 1993 + 1994 Earnings, divided by 4 12/31/95 and later The average of the Executive's highest five (5) consecutive Determination Years' Earnings out of the ten (10) consecutive Determination Years immediately preceding the Determination Date. Provided, however, if the Executive's Earnings for the Determination Year in which his employment with the Corporation terminates for any reason is greater than his Earnings during the first Determination Year of the averaging period to be used, the first Determination Year Earnings shall be disregarded and the Earnings of the Executive during the Determination Year in which his employment terminates shall be taken into account. 1.11 "Normal Retirement Date" means the first day of the month coinciding with or next following the month in which the Executive attains age 65. 1.12 "Primary Social Security Benefit" means the annual amount that would be available to the Executive at social security retirement age under the provisions of Title II of the Social Security Act without regard to any changes in the wage base or benefit levels that take effect after that date, based on the assumption that he will continue to receive until social security retirement age compensation which would be treated as wages for purposes of the Social Security Act at the same rate as he received such compensation at the time of retirement, death, disability or termination of employment if such event precedes his attainment of social security retirement age. 1.13 "Projected Accrued Benefit" under the Trustco Retirement Plan means the Executive's Accrued Benefit under the Trustco Retirement Plan as of his Normal Retirement Date, based on Projected Earnings, Projected Final Average Earnings, Projected Primary Social Security Benefit, and Projected Years of Service. 1.14 "Projected Earnings" means the Executive's estimated annual earnings for a future Determination Year and is equal to Earnings, excluding bonus, for the year ending on the Valuation Date increased by (a) the assumed future bonus payments, and (b) the assumed future cost of living increases for such year. The rate of assumed future bonus payments and the rate of assumed future cost of living increases shall be determined as of each Valuation Date by the Committee. 1.15 "Projected Final Average Earnings" means the average of the highest five (5) consecutive Determination Year's Projected Earnings out of the ten (10) consecutive Determination Years immediately preceding the Normal Retirement Date. If the Executive is within ten (10) years of his Normal Retirement Date, his actual Earnings, including bonuses, will be used for any Determination Year prior to the Valuation Date. Provided, however, if the Executive's Earnings for the Determination Year in which his employment with the Corporation terminates for any reason is greater than his Earnings during the first Determination Year of the averaging period to be used, the first Determination Year Earnings shall be disregarded and the Earnings of the Executive during the Determination Year in which his employment terminates shall be taken into account. 1.16 "Projected Primary Social Security Benefit" means the Executive's estimated Primary Social Security Benefit as of the January 1st of the year during which he attains the social security retirement age assuming that the social security wage base and the social security cost of living increases are equal to the assumed future cost of living increases used for projecting earnings. 1.17 "Projected Total Retirement Benefit" means the Total Retirement Benefit of the Executive as of his Normal Retirement Date, based on Projected Earnings, Projected Final Average Earnings, Projected Primary Social Security Benefits, and Projected Years of Service. 1.18 "Projected Years of Service" means the completed Years of Service at the Executive's Normal Retirement Date assuming the Executive continues to work forty (40) hours per week from the Valuation Date to his Normal Retirement Date. 1.19 "Supplemental Account Balance" means a bookkeeping account maintained by the Corporation which reflects the Executive's benefit under the Plan as calculated under Article II herein. 1.20 "Supplemental Retirement Benefit" means the benefit calculated in accordance with Article II of this Agreement. 1.21 "Total Retirement Benefit" means, as of any Determination Date, the following: (a) 2% of the Executive's Final Average Earnings times Years of Service as of the Determination Date, up to a maximum of 40 years, less (b) 50% of the Executive's Primary Social Security Benefit, less (c) The amount of the Executive's Accrued Benefit under the Trustco Retirement Plan, less (d) The amount of the Executive's accrued benefit under the Citibank, N.A. retirement plans, less (e) The amount of Supplemental Retirement Benefit previously distributed to the Executive. 1.22 "Valuation Date" means December 31 of each year. 1.23 "Years of Service" means (i) the Executive's years of service with Citibank, N.A., commencing December 1, 1954, plus (ii) his Years of Benefit Service, as calculated under the Trustco Retirement Plan without taking into account the maximum limit on Years of Benefit Service set forth in the Trustco Retirement Plan. ARTICLE II ______________ BENEFITS ______________ 2.1 Benefit Amount. When the Executive's employment with the Corporation and all of its subsidiaries is terminated, the Executive will be entitled to a benefit in an amount equal to his Supplemental Account Balance payable at such time and in such manner as provided herein. 2.2 Supplemental Account Balance at December 31, 1993. The Executive's Supplemental Account Balance at December 31, 1993, is equal to the lump sum Actuarial Equivalent of the Executive's Supplemental Retirement Benefit payable under the provisions of the Plan in effect on December 31, 1993. The Actuarial Equivalent shall be determined based on the annual Supplemental Retirement Benefit beginning on the Executive's Normal Retirement Date but based on his Final Average Earnings and Years of Service as of December 31, 1993. 2.3 Redetermination of Supplemental Account Balance on or Before Normal Retirement Date. The Executive's Supplemental Account Balance shall be redetermined on each Valuation Date and on his Normal Retirement Date. (a) The Supplemental Account Balance on any Valuation Date after December 31, 1993 is equal to: (i) the Supplemental Account Balance as of the immediately preceding Valuation Date, plus (ii) the Account Balance Increment for the Determination Year ending on the Valuation Date; less (iii) the amount of his Supplemental Retirement Benefit distributed under the Plan pursuant to Section 3.4, or its successor, since the immediately preceding Valuation Date. (b) (1) The Account Balance Increment for the Determination Year ending December 31, 1994 shall be determined as of January 1, 1994 and is equal to: (i) the projected Supplemental Account Balance at Normal Retirement Date, measured as of December 31, 1993, minus (ii) the accrued pension expense as determined by the Trustco Retirement Plan actuary under the Statement of Financial Accounting Standards No. 87 as of December 31, 1993, divided by (iii) the number of years and months from December 31, 1993 to the Executive's Normal Retirement Date, minus (iv) the Supplemental Account Balance as of December 31, 1993, plus (v) the accrued pension expense as determined by the Trustco Retirement Plan actuary under the Statement of Financial Accounting Standards No. 87 as of December 31, 1993. Notwithstanding the above, the Account Balance Increment for the Determination Year ending December 31, 1994 shall not be less than zero. (2) The Account Balance Increment for any Determination Year beginning on and after January 1, 1995 and through the Determination Year in which the Executive's Normal Retirement Date occurs shall be determined on the immediately preceding Valuation Date and is equal to: (i) the projected Supplemental Account Balance at Normal Retirement Date, measured as of the immediately preceding Valuation Date, minus (ii) the Supplemental Account Balance as of the immediately preceding Valuation Date, divided by (iii) the number of years and months from the immediately preceding Valuation Date to the Executive's Normal Retirement Date. Notwithstanding the above, the Account Balance Increment for any Determination Year beginning on and after January 1, 1995 shall not be less than zero. A portion of the Account Balance Increment constitutes interest which is determined by using the Pension Benefit Guaranty Corporation interest rate in effect as of the first day of the applicable Determination Year. (c) The Executive's projected Supplemental Account Balance at Normal Retirement Date is equal to the lump sum Actuarial Equivalent of: (i) his Projected Total Retirement Benefit, less (ii) the amount of his Projected Accrued Benefit under the Trustco Retirement Plan; less (iii) the amount of his Supplemental Retirement Benefit previously distributed under the Plan pursuant to Section 3.4, or its successor. 2.4 Determination of Supplemental Account Balance After Normal Retirement Date. If the Executive remains in the employment of the Corporation beyond his Normal Retirement Date, his Supplemental Account Balance shall be increased as of each Valuation Date subsequent to his Normal Retirement Date by an amount equal to: (a) the interest on the Supplemental Account Balance as of the immediately preceding Valuation Date (adjusted for any distributions made to the Executive in accordance with Section 3.4 since the immediately preceding Valuation Date) at the Pension Benefit Guaranty Corporation interest rate in effect on the Valuation Date, plus (b) the same percentage of Earnings as is allocated as of such Valuation Date to participants under the Profit Sharing Plan of Trustco Bank New York. For the Valuation Date immediately following the Executive's Normal Retirement Date, his Account Balance Increment shall be the greater of the amount determined under Section 2.3 or the amount determined under this Section 2.4. 2.5 Monthly Allocation Date. The Supplemental Account Balance on the last day of any month during the Determination Year (the "Monthly Allocation Date") shall be equal to: (i) the Supplemental Account Balance as of the immediately preceding Valuation Date, plus (ii) the Account Balance Increment, times the quotient of the number of months from the immediately preceding Valuation Date to the Monthly Allocation Date, divided by 12. 2.6 Reduction of Supplemental Account Balance. The Executive's Supplemental Account Balance will be reduced by the amount of any distribution made to the Executive pursuant to Sections 3.3 or 3.4. ARTICLE III ______________ PAYMENT OF BENEFITS ______________________ 3.1 Except as otherwise provided in Sections 3.2 and 6.1, if the Executive's employment with the Corporation and all of its subsidiaries is terminated for reasons other than retirement, disability or death, the Executive will be entitled to his Supplemental Account Balance determined at the next Monthly Allocation Date. 3.2 If the Executive's employment with the Corporation or one of its subsidiaries is terminated (a) by retirement, (b) by disability, or (c) by death, the Executive or his Beneficiary will be entitled to his Supplemental Account Balance determined at the next Valuation Date. 3.3 The Supplemental Account Balance shall be payable to the Executive or his Beneficiary in the same manner, and at the same time, as benefit payments to such Participant or his Beneficiary under the Trustco Retirement Plan or in one lump sum or a series of installments as elected by the Executive. 3.4 Notwithstanding Section 3.3, the Corporation, in its discretion, may at any time elect to distribute to the Executive or his Beneficiary a single lump sum equal to the Supplemental Account Balance as of a date specified by the Corporation. The Actuarial Equivalent of any single lump sum distribution will be included in the amount offset under Section 2.3(c)(iii). ARTICLE IV ______________ CLAIMS ______________ 4.1 If a claim for benefits under the Plan is denied, the Committee will provide a written notice of the denial setting forth the specific reasons for the denial, a description of any additional material or information necessary for a claimant to perfect a claim, an explanation of why such material or information is necessary, and appropriate information as to the steps to be taken for the claim to be submitted for review. A claimant may request a review of a denial. Such requests should be submitted to the Committee, in writing within 60 days after receipt of the denial notice, stating the reasons for requesting the review. A claimant may review pertinent documents and submit issues and comments in writing. A decision will be made on the review of the denial of a claim not later than 60 days after the Committee's receipt of a request for review unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible but not later than 120 days after receipt of a request for review. The decision on review will be in writing to the claimant and shall include specific reasons for the decision. ARTICLE V ___________ MISCELLANEOUS _______________ 5.1 The benefit provided hereunder will be paid directly from the Corporation out of its general assets and the benefit will not be funded. 5.2 This Agreement shall not be construed as giving the Executive any right to be retained in the employ of the Corporation. 5.3 Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Corporation and the Executive, his Beneficiary or any other person. To the extent that any person acquires the right to receive payment from the Corporation under this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Corporation. 5.4 No benefit payable at any time under this Agreement shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment or encumbrance of any kind. 5.5 This Agreement shall be binding upon and inure to the benefit of the Corporation, its successors and assigns and the Executive and his heirs, executor, administrator and legal representatives. 5.6 All rights hereunder shall be governed by and construed according to the laws of the State of New York, except to the extent such laws are preempted by the laws of the United States of America. In the event any provision of this Agreement is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Agreement. 5.7 No modification of this Agreement shall be binding upon the parties hereto, or either of them, unless such modification is in writing and signed by the Corporation and the Executive. ARTICLE VI ____________ CHANGE IN CONTROL ____________________ 6.1 If the Executive's employment with the Corporation and all of its subsidiaries is terminated within two (2) years after a Change in Control, the Executive will be entitled to a single lump sum payment equal to the Supplemental Account Balance at the next Valuation Date. IN WITNESS WHEREOF, the parties hereto have executed this Agreement this 21st day of June, 1994. TRUSTCO BANK CORP NY By:/s/William F. Terry ________________________________ TRUSTCO BANK NEW YORK, "Corporation" By:/s/William F. Terry ________________________________ /s/Robert A. McCormick ____________________________________ Robert A. McCormick, "Executive" AMENDMENT NO. 1 TO RESTATED AGREEMENT FOR SUPPLEMENTAL RETIREMENT BENEFITS FOR ROBERT A. McCORMICK WHEREAS, TrustCo Bank Corp NY, a New York corporation, Trustco Bank, National Association (herein referred to as the "Corporation"), and Robert A. McCormick (herein referred to as the "Executive") entered into an Agreement For Supplemental Retirement Benefits dated as of January 1, 1992 (herein referred to as the "Agreement"); and WHEREAS, the Corporation and McCormick desire to amend the Agreement; NOW, THEREFORE, the Agreement is hereby amended effective October 17, 1995, except as otherwise stated below, as follows: I. Section 3.3 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof: "3.3. The Supplemental Account Balance shall commence to be paid to the Executive at such time as benefits become payable to the Executive under the Retirement Plan. The Supplemental Account Balance may be paid in one of the benefit forms provided under the Retirement Plan or in one lump sum or a series of installments, as elected by the Executive." II. Effective October 17, 1995, Section 5.1 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof: "Section 5.1. The Corporation intends that the Plan constitute an unfunded plan maintained for the purposes of providing deferred compensation for a select group of management or highly compensated employees." IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 1 to be executed this 1st day of December, 1995. TRUSTCO BANK CORP NY By:/s/William F. Terry _______________________________ Title: Secretary ____________________________ TRUSTCO BANK, NATIONAL ASSOCIATION By:/s/William F. Terry _______________________________ Title: Secretary ____________________________ /s/Robert A. McCormick __________________________________ Robert A. McCormick Exhibit 10(n) TRUSTCO BANK _________________ EXECUTIVE OFFICER INCENTIVE PLAN ______________________________________ WHEREAS, Trustco Bank New York, a New York corporation (the "Corporation"), desires to increase the extent to which the incentive compensation of its executive officers is linked to business goals and objectives by tying incentive awards to return on equity of the Corporation; NOW, THEREFORE, effective as of January 1, 1994, the Corporation hereby adopts the Trustco Bank Executive Officer Incentive Plan which shall read as follows: ARTICLE I ___________ DEFINITIONS ______________ Section 1.1 "Base Salary" means the annual salary payable to a Participant, including deferrals under Code section 125 and exclusive of any bonuses, incentive awards, plan contributions or any other fringe benefit payable during the Plan Year. Section 1.2. "Beneficiary" means the person or persons designated by a Participant in writing to receive any benefits under this Plan upon the Participant's death. If a Participant fails to designate a Beneficiary, if no such Beneficiary is living upon the death of such Participant or if such designation is legally ineffective, then "Beneficiary" shall mean the Participant's personal representative or, if no personal representative is named, the Participant's testamentary trust or living trust. Section 1.3 "Board of Directors" means the Board of Directors of Trustco Bank New York. Section 1.4 "Code" means the Internal Revenue Code of 1986, as amended. Section 1.5 "Committee" means the committee appointed by the Board of Directors to administer the Plan. Section 1.6 "Corporation" means Trustco Bank New York. Section 1.7 "Deferred Compensation Account" means the bookkeeping account established for each Participant pursuant to Section 4.2 herein. Section 1.8 "Incentive Award" means the awards made pursuant to Section 3.1 herein. Section 1.9. "Net Income" means net income of the Corporation exclusive of any related restructure charges directly in conjunction with a merger or acquisition. Section 1.10. "Participant" means any executive officer of the Corporation who is approved by the Board for participation in the Plan as provided in Article II. Section 1.11. "Plan" means the Trustco Bank Executive officer Incentive Plan as set forth herein and as the same may be amended from time to time. Section 1.12. "Plan Year" means the twelve (12) month period beginning on any January 1 and ending on the following December 31. Section 1.13. "Retirement" means termination on or after the earliest retirement date specified in the retirement Plan of Trustco Bank New York. Section 1.14. "Return on Equity" means Net Income divided by the sum of Total Shareholder Equity plus or minus mark-to-market adjustments for securities minus any equity transaction directly in conjunction with a merger or acquisition. Section 1.15. "Total and Permanent Disability" has the same meaning as defined in the Retirement Plan of Trustco Bank New York. Section 1.16. "Total Shareholder Equity" means total equity of the Corporation exclusive of any equity transactions directly in conjunction with a merger or acquisition. ARTICLE II ____________ PARTICIPATION _______________ Section 2.1. Prior to each Plan Year, the Chief Executive Officer will present to the Board a list of the executive officer positions recommended for participation in the Plan for the Plan Year. The Board shall act upon these recommendations and inform executive officers of their selection prior to the beginning of the Plan Year. Section 2.2. Subject to the provisions of Sections 2.3, 2.4, and 2.5 herein, individuals assigned to a position designated for participation in the Plan during the course of a Plan Year will be eligible for receipt of Incentive Awards even if they are in such positions only part of the Plan Year. The Incentive Award to such Participants will be prorated based upon the number of full calendar months of service in the participating position. Section 2.3. A Participant who terminates employment due to Total and Permanent Disability or Retirement will be entitled to an Incentive Award for the Plan Year based upon the portion of the Base Salary actually paid to such Participant during the Plan Year in which he terminates. Section 2.4. A participant who dies prior to the end of the Plan Year will be entitled to an Incentive Award for the Plan Year as calculated under Section 3.1 herein. Section 2.5 A Participant who terminates employment prior to the end of a Plan Year for reasons other than death, Total and Permanent Disability or Retirement, will cease to be a Participant in the Plan as of the date of termination of employment and will forfeit all rights to Incentive Awards accrued during the Plan Year in which the termination of employment occurs. ARTICLE III _______________ INCENTIVE AWARDS ____________________ Section 3.1 A Participant will be entitled to an Incentive Award for each Plan Year in which the Return on Equity of the Corporation equals or exceeds 14%. The Incentive Award will be an amount equal to his Base Salary multiplied by a bonus percentage based on the Corporation's Return on Equity as set forth in the following table: Return on Equity Bonus Percentage __________________ __________________ 14% 40% 15% 50% 16% 60% 17% 75% 18% 90% 19% 100% 20% 125% Section 3.2. The Incentive Award for a Plan Year will be determined by the Board following a report to the Board made no earlier than the December meeting of the Board for the Plan Year. Section 3.3. Unless the Participant elects to defer receipt of his Incentive Award as provided in article IV, Incentive Awards will be paid in cash to Participants as soon as practicable following the determination of the Incentive Awards by the Board. ARTICLE IV ____________ DEFERRAL OF INCENTIVE AWARDS ________________________________ Section 4.1. On or before December 31, a Participant may elect in writing to defer receipt of all or a specific part of the Incentive Award that the Participant may earn the following Plan Year. Such deferral election continues in effect from Plan Year to Plan Year unless the Participant amends or terminates his deferral election by written request. Any amendment or termination of a deferral election will first become effective for the Incentive Award earned during the Plan Year commencing after the receipt of such written request. Section 4.2 The Corporation will establish a Deferred Compensation Account for each participant who elects to defer all or part of an Incentive Award for any Plan Year. Incentive Awards deferred by a Participant pursuant to this article IV will be credited to his Deferred Compensation account as of the date the Incentive Award would have been payable to the Participant but for this deferral election. Such Deferred Compensation Account will be for bookkeeping purposes only. The Corporation will not be required to segregate assets or otherwise establish a trust with respect to Incentive awards deferred pursuant to this article IV. Section 4.3 A Participant's Deferred Compensation Account will be credited at the end of each calendar quarter with an amount equal to the balance of the Deferred Compensation account at the beginning of the quarter multiplied by the product of the number of days in the quarter and the highest daily periodic percentage rate as of the end of the quarter offered by the Corporation on any of its retail certificates of deposit due in excess of twelve months. ARTICLE V ___________ PAYMENT OF DEFERRED OF INCENTIVE AWARDS _________________________________________ Section 5.1. Upon termination of employment of a Participant due to Retirement, Total and Permanent Disability or any reason other than death, his Deferred Compensation Account will be payable to him or his Beneficiary in a single lump sum as soon as practicable following his termination of employment. Section 5.2. Upon the death of a Participant, his Deferred Compensation Account will be payable to his Beneficiary in a single lump sum on the first day of the Plan Year following his death. ARTICLE VI ____________ CLAIMS ________ Section 6.1 If a claim for benefits under the Plan is denied, the Committee will provide a written notice of the denial setting forth the specific reasons for the denial, a description of any additional material or information necessary for a claimant to perfect a claim, an explanation of why such material or information is necessary and appropriate and information as to the steps to be taken for the claim to be submitted for review. A claimant may request a review of a denial. Such request should be submitted to the Committee, in writing, within 60 days after receipt of the denial notice stating the reasons for requesting the review. A claimant may review pertinent documents and submit issues and comments in writing. A decision will be made on the review of the denial of a claim not later than 60 days after the Committee's receipt of a request for review unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible but not later than 120 days after receipt of a request for review, provided that the claimant is given written notice of the extension of time within the original 60 day period. The decision on review will be in writing to the claimant and shall include specific reasons for the decision. ARTICLE VII ______________ AMENDMENT AND TERMINATION _____________________________ Section 7.1. The Board may amend or terminate the Plan at any time; provided, however, that no such amendment or termination may alter or impair any Participant's rights previously granted under the Plan as of the date of such amendment or termination without his consent. Section 7.2. In the event of Plan termination, a Participant's Deferred Compensation account will not be paid to him until he dies or otherwise terminates his employment with the Corporation. ARTICLE VIII _______________ ADMINISTRATION _______________ Section 8.1. The Plan shall be administered by the Committee, in accordance with its terms, for the exclusive benefit of Participants. ARTICLE IX ____________ MISCELLANEOUS _______________ Section 9.1. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall give the Participant the right to be retained in the employ of the Corporation or interfere with the right of the Corporation to discharge the Participant any time. Section 9.2. No benefit payable at any time under this Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment or encumbrance of any kind except by will, by the laws of descent and distribution or by Beneficiary designation herein. Section 9.3. All rights hereunder shall be governed by and construed according to the laws of the State of New York, except to the extent such laws are preempted by the laws of the United States of America. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan. Section 9.4. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind or a fiduciary relationship between the Corporation and the participant or any other person. To the extent that any person acquires the right to receive payment from the Corporation under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Corporation. Section 9.5. The terms of this Plan shall be binding upon and inure to the benefit of the Corporation, its successors and assigns, and the Participant and his heirs and legal representatives. IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed on this 22nd day of December, 1993. /s/ Robert A. McCormick _____________________________ President\CEO _____________________________ Title AMENDMENT NO. 1 TO TRUSTCO BANK EXECUTIVE OFFICER INCENTIVE PLAN WHEREAS, Trustco Bank New York, a New York corporation (the "Corporation"), established the Trustco Bank Executive Officer Incentive Plan (the "Plan") effective January 1, 1994; and WHEREAS, the Corporation desires to amend the Plan effective January 1, 1994; NOW, THEREFORE, the Corporation hereby amends the Plan effective January 1, 1994, in the following respects: I. New sections, designated sections 1.3a and 1.3b, are hereby inserted between Sections 1.3 and 1.4 of the Plan and shall read as follows: "Section 1.3a. "Cause" means conduct of a Participant which is finally adjudged to be knowingly fraudulent, deliberately dishonest or willful misconduct. The Committee shall have sole and uncontrolled discretion with respect to the applicable of the provisions of this Section 3.3a and any determination shall be conclusive and binding upon the Participant and all other persons. "Section 1.3b. "Change in Control" means any of the following events: (a) any individual, corporation (other than the Corporation), partnership, trust, association, pool, syndicate, or any other entity or any group of persons acting in concert becomes the beneficial owner, as that concept is defined in rule 13d-3 promulgated by the Securities and Exchange Commission under the securities Exchange Act of 1934, of securities of the Corporation possessing twenty percent (20%) or more of the voting power for the election of Directors of the Corporation; (b) there shall be consummated any consolidation, merger or other business combination involving the Corporation or the securities of the Corporation in which holders of voting securities of the corporation immediately prior to such consummating own, as a group, immediately after such consummation, voting securities of the Corporation (or, if the Corporation does not survive such transaction, voting securities of the corporation surviving such transaction) having less than fifty percent (50%) of the total voting power in an election of Directors of the Corporation (or such other surviving corporation); (c) during any period of two consecutive years, individuals who at the beginning of such period constitute the Directors of the corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the corporation's shareholders, of each new Director of the Corporation was approved by a vote of at least two-thirds of the directors of the Corporation then still in office who were Directors of the Corporation at the beginning of any such period; (d) removal by the stockholders of all or any of the incumbent Directors of the Corporation other than a removal for Cause; or (e) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (on a consolidated basis) to a party which is not controlled by or under common control with the Corporation." II. Section 2.2 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof: "Section 2.2. Subject to the provisions of Sections 2.3, 2.4, 2.5 and 2.6 herein, individuals assigned to a position designated for participation in the Plan during the course of a Plan Year will be eligible for receipt of Incentive Awards even if they are in such positions only part of the Plan Year. The Incentive Award to such Participants will be prorated based upon the number of full calendar months of service in the participating position." III. A new section, designated Section 2.6, is hereby added to article II of the Plan and shall read as follows: Section 2.6. A Participant who terminates employment within two (2) years after a Change in Control will be entitled to an Incentive Award for the Plan Year based upon the portion of the base Salary actually paid to such Participant during the Plan Year in which he terminates." IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 1 to be executed this 18th day of October, 1994. TRUSTCO BANK NEW YORK By: /s/ William F. Terry _________________________ Title: Secretary _________________________ AMENDMENT NO. 2 TRUSTCO BANK EXECUTIVE OFFICER INCENTIVE PLAN WHEREAS, Trustco Bank New York, (herein referred to as the "Company") maintains the Trustco Bank Executive Officer Incentive Plan (herein referred to as the "Plan"); and WHEREAS, by statutory conversion the Company converted from a state chartered trust company to a national bank, and in connection with the conversion the name of the Company changed to Trustco Bank, National Association effective February 1, 1995; and Whereas, the Company desires to amend the Plan to reflect the change of its name; NOW, THEREFORE, effective February 1, 1995, the Plan is hereby amended by changing "Trustco Bank New York" to "Trustco Bank, National Association" in each place where it appears therein. IN WITNESS WHEREOF, the Company has caused this amendment No. 2 to be executed this 13th day of February, 1995. TRUSTCO BANK, NATIONAL ASSOCIATION By: /S/ William F. Terry _________________________________ Title: Secretary _________________________________ AMENDMENT NO. 3 TO TRUSTCO BANK EXECUTIVE OFFICER INCENTIVE PLAN WHEREAS, Trustco Bank, National Association (herein referred to as the "Company") maintains the Trustco Bank Executive Officer Incentive Plan (herein referred to as the "Plan"); and WHEREAS, the Company desires to amend the Plan; NOW, THEREFORE, the Plan is hereby amended effective January 1, 1995, except as otherwise stated below, as follows: I. The following is hereby added at the end of Section 2.2 of the Plan: "A Participant shall be one hundred percent (100%) vested at all times in each Incentive Award made to such Participant." II. Effective October 1, 1995, Section 4.3 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof: "Section 4.3. A Participant's Deferred Compensation Account will be credited at the end of each calendar quarter with an amount calculated by multiplying the Participant's Deferred Compensation Account as of the first day of the calendar quarter by a rate equal to one- fourth of the greater of (i) six % or (ii) the ten-year U.S. Treasury Bond rate on the last business day of the quarter." IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 3 to be executed this 1st day of December, 1995. TRUSTCO BANK, NATIONAL ASSOCIATION By: William F. Terry __________________ Title:Secretary __________________ Exhibit 11 TRUSTCO BANK CORP NY 1995 FORM 10-K Computation of Net Income Per Common Share Year Ended December 31 1995 1994 1993 Net Income..........$25,527,000 $22,888,000 $20,325,000 Weighted Daily average number of common shares outstanding........ 18,035,000 17,863,000 17,764,000 Net Income Per Common Share.... $1.42 $1.28 $1.14 ====== ====== ====== Note: Daily average shares outstanding for all years have been adjusted to reflect a 6 for 5 stock split in August 1995, a 10% stock dividend in 1994, and a 2 for 1 stock split in 1993. Exhibit 13 Annual Report to Security Holders of TrustCo for the year ended December 31, 1995 TrustCo Bank Corp NY is a one bank holding company headquartered in Schenectady, New York. The Company is the largest commercial banking enterprise headquartered in the Capital Region of New York State. The principal subsidiary of the Company is Trustco Bank, National Association, which operates 47 community banking offices and 23 ATM's throughout the Bank's business territory. The Bank serves 8 counties with a broad range of community banking services. Financial Highlights
(dollars in thousands, except per share data) Years ended December 31, Percent 1995 1994 Change Income: Net interest income (TE) $ 83,451 81,117 2.9% Net income 25,527 22,888 11.5 Per Share : Net income 1.42 1.28 10.9 Book value 9.08 7.94 14.4 Average Balances: Assets 2,073,391 1,994,497 4.0 Loans, net 1,187,929 1,122,698 5.8 Deposits 1,859,070 1,808,336 2.8 Shareholders' equity 145,469 136,977 6.2 Financial Ratios: Return on average assets 1.23% 1.15 7.0 Return on average equity 18.03 17.01 6.0 Tier 1 capital to period end: Total assets (leverage) 7.36 7.05 4.4 Risk adjusted assets 12.45 12.08 3.1 Total capital to risk adjusted assets 13.73 13.35 2.8 As a percentage of average loans: Loans charged off, net of recoveries 0.27 0.29 (6.9) Provision for loan losses 1.07 0.72 48.6 Allowance for loan losses as a coverage of nonperforming loans 3.09X 3.32 (6.9) Efficiency ratio 42.52% 41.82 1.7 Dividend payout ratio 69.55 62.52 11.2
Per share information of common stock
Range of Stock Net Cash Book Price Income Dividend Value High Low 1994 First quarter $.30 .19 7.59 17.71 14.20 Second quarter .31 .19 7.62 17.42 13.83 Third quarter .33 .21 7.79 17.90 15.72 Fourth quarter .35 .23 7.94 17.82 15.42 1995 First quarter .33 .23 8.12 17.29 15.21 Second quarter .34 .23 8.38 18.13 16.46 Third quarter .36 .28 8.50 23.00 17.71 Fourth quarter .38 .28 9.08 22.50 21.25 Adjusted for 6 for 5 stock split in 1995 and a 10% stock dividend in 1994. Excludes the market adjustment on securities available for sale.
Table of Contents Contents Financial Highlights Executive and Senior Officers of Trustco Bank President's Message Management's Discussion and Analysis of Operations Average Balances, Yields and Net Interest Margins Glossary of Terms Management's Statement of Responsibilities Independent Auditors' Report Consolidated Financial Statements and Notes Officers and Board of Directors Officers Branch Locations General Information TrustCo Mission Statement: TrustCo will be the low cost provider of high quality services to the customers and communities it serves and return to its owners an above average return on their investment. Executive and Senior Officers of Trustco Bank President's Message Dear Shareholder: TrustCo had another record year in 1995. 1995 was generally a good year in the banking industry, and I'm pleased that we continue to provide record performance with unerring consistency. We are grateful to our employees and Board of Directors for their strong support and enthusiasm. During 1995 shareholder values continued in the right direction with net income at $25.5 million, up a significant 12% over 1994. TrustCo's most important ratio, return on shareholders' equity, was 18.03%, up from 17.01% in 1994. We are committed to insuring that return on equity compares favorably in any peer group, and we are comfortable that it does. TrustCo's five year ROE was 16.69% and we plan an increase to 19% for the current fiscal year. During 1995, we issued a 20% stock split maintaining the cash dividend level on the newly issued shares, effectively increasing dividend income for TrustCo owners by 20%. The quarterly cash dividend has increased at a 23% compound annual rate over the last five years, a major accomplishment. It is our intention to continue monitoring our internal generation of capital; should excess capital exist, we would recommend steps to the Board to correct that situation. These steps could include any measures that would return excess capital to TrustCo's owners. I think it appropriate to thank all our Board members for their continued guidance throughout the year. We note with sorrow the passing of Henry D. Wright and Donald E. Craig, Honorary Directors, who served the Board with distinction for many years. During 1995 William D. Powers joined the Boards of the bank and holding company. We believe Bill brings significant additional strength to the Board. A senior staff addition during 1995 was Robert J. McCormick, appointed Vice President, Senior Commercial Loan Officer. Rob comes to us from Albank after 12 years service. Peter Zakriski, Administrative Vice President, retired December 1. We thank Pete for his many contributions over the years. TrustCo's branch expansion program continues and we opened four additional branches during 1995. Our plans call for two to three branch openings a year until we have filled the gaps in our market territory. The targeted upgrading continues with each branch receiving a major review and renovation at approximately seven year intervals. During 1995, we evaluated and discussed a number of acquisition opportunities. Unfortunately, our discussions were not successful. Our approach to acquisitions is quite simple -- we are extremely careful to avoid damage to shareholder value in the existing TrustCo franchise. Since its inception, Trustco Bank has been a New York State chartered institution regulated by the Federal Reserve Bank of New York and the New York State Banking Department. We applied for and completed a change from a New York State charter to a national charter during the first quarter of 1995. We think changes in the industry suggest the most appropriate direction for the future is a national charter regulated by the Office of the Comptroller of the Currency. We are pleased with the change results to date. TrustCo's Affordable Housing Program, which was designed to assist with homeownership, continues to be a success in new markets. We consider this program a model for community reinvestment and one of the most effective in the state. 1995 was another year in which TrustCo avoided most of the industry difficulties while moving forward to new records. We intend to continue this "boring" path to the benefit of the owners, employees, and community for the foreseeable future. 1996 will provide income and growth success with emphasis continuing on the Home Equity Loan and Home Equity Credit Line products and our improved NOW and savings accounts on the deposit side. Our Trust department, which currently manages assets in excess of $777 million has ambitious expectations, and is moving forward under the new management team. 1996 and beyond should benefit from the solid performance of the superb employee team here at TrustCo. For 1995 the often quoted efficiency ratio for our Company was 42.52% at a time when most banking companies would like to see 60.00%. This level of performance efficiency will benefit us through reduced operating expense for years to come. 1995 was a year of significant asset growth from $1.976 billion to $2.176 billion, an increase of 10%, in a time of continuing deposit outflows from banks. This solid performance will provide us with investment opportunities going forward. Our loan portfolio continued to grow during 1995, increasing by 6%, with continued emphasis on the retail side of the product mix. The quality of the loan portfolio is excellent, and our allowance for loan loss has a coverage ratio 3.1 times nonperforming loans, an important area of reserve. Community needs have expanded, and TrustCo has responded appropriately. TrustCo has provided increased employee and management participation in charitable and community organizations, increased its corporate charitable contributions throughout the Capital District, and our Affordable Housing Program continues to grow. TrustCo continues to receive solid external comment. During 1995 we received favorable mention in Kiplingers' July edition; Advest re dividend yield; Forbes' July and November editions. We are enthusiastic about TrustCo's future. It is the intention at every level in the Company to continue our past success into the future. Our products are tailored to the needs of our community, we have an unmatched employee team to deliver them, and a management style that can adapt to any change the marketplace may bring almost immediately. We are sure the combination mentioned above and enthusiastic commitment of the Board of Directors will ensure our continuing success in the years ahead, whatever the banking environment. Sincerely, Robert A. McCormick, President and Chief Executive Officer Management's Discussion and Analysis of Operations The financial review which follows will focus on the factors affecting the financial condition and results of operations of TrustCo Bank Corp NY (the "Company" or "TrustCo") and Trustco Bank, National Association (the "Bank" or "Trustco") during 1995 and, in summary form, the preceding two years. Net interest income and net interest margin are presented in this discussion on a taxable equivalent basis. Balances discussed are daily averages unless otherwise described. The consolidated financial statements and related notes and the quarterly reports to shareholders for 1995 should be read in conjunction with this review. Certain amounts in years prior to 1995 have been reclassified to conform with the 1995 presentation. During 1995, TrustCo adopted new accounting pronouncements dealing with the identification, reporting and accounting for impaired loans, which are more fully described in the enclosed notes to the consolidated financial statements. The new standards had no impact on the operations of the Company for 1995. All per share information has been adjusted for the 6 for 5 stock split in August 1995. Overview TrustCo recorded net income of $25,527,000 or $1.42 per share for the year ended December 31, 1995, compared to $22,888,000 or $1.28 per share for the year ended December 31, 1994. This represents an increase of 12% in the full year earnings and an 11% increase in the per share results. During 1995 TrustCo achieved: * taxable equivalent net interest income of $83.5 million, an increase of 3% over 1994, * a reserve coverage ratio of nonperforming loans of 3.1 times. The allowance set aside for problem loans reached 3.94% of loans at year end 1995, compared to 3.34% for 1994, * an efficiency ratio of 42.52% for the year. Industry goals look for the attainment of a 60% efficiency ratio. TrustCo outperformed the industry on this ratio for 1993, 1994 and 1995, and * growth in average deposits to $1.9 billion, representing a 3% increase over 1994. The net interest margin for 1995 was 7 basis points lower than in 1994 as a result of the increased cost of attracting new deposits. Asset/Liability Management TrustCo's objectives in managing its balance sheet are to manage the sensitivity of net interest income in relation to actual or potential changes in interest rates and to enhance profitability through strategies that promise sufficient reward for understood and controlled risk. The Company has established guidelines for liquidity so as to maintain adequate levels in light of loan and deposit demands. TrustCo does not engage in any high risk investing activities nor does it invest in financial derivatives. The Company relies on traditional banking investment instruments and its large base of "core" deposits to help in asset/liability management. MIX OF AVERAGE EARNING ASSETS (dollars in thousands)
Components of 95 - 94 94 - 93 Total Earning Assets 1995 1994 1993 Change Change 1995 1994 1993 Loans, net of unearned income $1,187,929 1,122,698 1,044,855 65,231 77,843 59.6% 58.9 56.2 Trading securities -- -- 1,731 -- (1,731) -- -- 0.1 Securities available for sale: U.S. Treasuries and agencies 255,244 269,378 182,273 (14,134) 87,105 12.8 14.1 9.9 States and political subdivisions 15,926 -- -- 15,926 -- 0.8 -- -- Mortgage-backed securities 8,731 35,172 -- (26,441) 35,172 0.4 1.8 -- Other 21,179 28,430 10,160 (7,251) 18,270 1.1 1.5 0.5 Total securities available for sale 301,080 332,980 192,433 (31,900) 140,547 15.1 17.4 10.4 Investment securities: U.S. Treasuries and agencies 119,989 98,380 274,398 21,609 (176,018) 6.0 5.1 14.8 States and political subdivisions 40,068 27,120 32,615 12,948 (5,495) 2.0 1.4 1.8 Mortgage-backed securities 119,113 111,691 119,442 7,422 (7,751) 6.0 5.8 6.4 Other 13,738 13,621 28,681 117 (15,060) 0.7 0.7 1.5 Total investment securities 292,908 250,812 455,136 42,096 (204,324) 14.7 13.0 24.5 Federal funds sold 212,323 203,878 163,567 8,445 40,311 10.6 10.7 8.8 Total earning assets $1,994,240 1,910,368 1,857,722 83,872 52,646 100.0% 100.0 100.0
Earning Assets Average earning assets during 1995 were $2.0 billion, which is $84 million, or 4%, over the prior year. The increase in average earning assets was dependent on three factors: * growth in funding sources (deposits and borrowings), * movement of assets from nonearning to earning categories, and * the internal generation of capital retained by the Company. The $84 million increase in average earning assets was the result of a $69 million increase in funding sources, the conversion of $5 million from nonearning asset categories, and the retention of $8 million in capital during 1995. In addition, a small increase in various other liabilities provided $2 million toward the growth in average earning assets. The table, "Mix of Average Earning Assets" shows how the mix of the earning assets has changed over the last three years. While growth in earning assets is critical to improved profitability, changes to the mix of earning assets can also have a significant impact on profitability. Loans: Average total loans increased $65.1 million, or 5.8%, during 1995. Net loans grew from 58.9% of average earning assets in 1994 to 59.6% of average earning assets in 1995. The steady growth of the loan portfolio as a component of the Company's asset mix, as well as the continued high quality of the portfolio, have contributed significantly to the Company's superior operating results for 1995. Loan products related to residential real estate continued to exhibit significant growth during 1995. Average residential mortgage loans rose $62.0 million, or 9.5%, during 1995. TrustCo continued to outpace the competition by offering mortgage loan products that offer a quick decision on application, low closing costs and no escrow requirement. The overwhelming majority of TrustCo's real estate loans are secured by properties within the Bank's market area. Management's specific knowledge of local market conditions and trends enhances the quality of the loan portfolio. During 1995, management continued its established practice of retaining all new real estate loan originations in the Bank's portfolio rather than packaging them for sale in the secondary mortgage market. The average balance of commercial and commercial real estate loans was largely unchanged during 1995. New loan originations were slightly outpaced by amortizations and problem loan resolutions, a portfolio trend reflective of general economic uncertainty. TrustCo's commercial lending activities are focused on balancing the Company's commitment to meeting the credit needs of businesses within its market area with the necessity of maintaining a high quality loan portfolio. In accordance with these ideals, the Bank has consistently emphasized the origination of loans within its market area. The portfolio contains no foreign loans, nor does it contain any concentrations of credit extended to any single borrower or industry. The Bank's commercial portfolio reflects the diversity found in the Capital Region's economy. LOAN PORTFOLIO
(dollars in thousands) Average Balances 1995 1994 1993 1992 1991 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Residential $ 714,804 60.1% $ 652,837 58.0% $ 555,317 52.9% $ 506,362 49.2% $274,696 43.6% Commercial 237,165 19.92 37,994 21.2 255,265 24.42 87,524 27.91 71,695 27.2 Home equity line of credit 202,647 17.0 203,756 18.1 201,013 19.2 183,539 17.8 133,721 21.2 Installment 35,269 3.0 30,242 2.7 36,185 3.5 52,790 5.1 50,268 8.0 Total loans 1,189,885 100.0% 1,124,829 100.0% 1,047,780 100.0% 1,030,215 100.0% 630,380 100.0% Less: Unearned income 1,956 2,131 2,925 4,735 5,349 Allowance for loan losses 45,086 37,334 30,214 23,735 16,139 Net loans $1,142,843 1,085,364 1,014,641 1,001,745 608,892
TrustCo continues to offer a full range of consumer credit products. During 1994, the Bank commenced a program to promote its credit card products. This program, which combined aggressive marketing and attractive pricing, resulted in significant growth in credit card receivables during 1994 and 1995. The average balance of the installment loan portfolio increased to $35.3 million for 1995, a 16.6% increase over 1994. Virtually all of the increase is concentrated in the credit card portfolio. Credit card outstandings averaged $17.9 million in 1995 compared to $12.0 million in 1994. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
(in thousands) December 31, 1995 After 1 Year In 1 Year But Within After or Less 5 Years 5 Years Total Commercial $155,403 61,050 8,721 225,174 Real estate construction 11,239 -- -- 11,239 Total $166,642 61,050 8,721 236,413 Predetermined rates $ 34,843 49,036 8,721 92,600 Floating rates 131,799 12,014 -- 143,813 Total $166,642 61,050 8,721 236,413
Securities available for sale and investment securities: The Company adopted new accounting standards during 1994 for its securities portfolio. The Company identifies securities available for sale and those securities that are for investment purposes and will be held to maturity. The following contains information related to these securities. Securities available for sale: During 1995, the portfolio of securities available for sale was actively managed by the Company to take full advantage of the changes in interest rates occurring during that time period. At December 31, 1995, securities available for sale amounted to $640.2 million compared to $117.5 million at year end 1994. As more fully described in the footnotes to the consolidated financial statements, due to changes in the accounting for investment securities, in December 1995 TrustCo transferred the held to maturity securities portfolio to the securities available for sale portfolio. In the fourth quarter of 1995, the accounting regulatory authorities allowed a one time transfer of securities from the held to maturity category to the available for sale category. Approximately $288.5 million of securities were transferred to the available for sale portfolio as a result of this opportunity. Therefore, at year end 1995, there are no securities identified as held to maturity. Securities classified as available for sale are utilized as an integral element in the asset/liability management process of the Company. These securities are actively managed to take advantage of changes in interest rates or other banking opportunities that become available. The decision to transfer the held to maturity securities into the category of securities available for sale allows TrustCo to manage these newly transferred assets similarly. Sales of securities from the held to maturity portfolio are allowed only under very limited circumstances and, therefore, active portfolio management is not allowed. For 1995, the average balance of securities available for sale was $301.1 million, down $31.9 million from the average balance of $333.0 million in 1994. The average yield earned on this portfolio for 1995 was 7.49% compared to 6.38% in 1994. Approximately 85% of the average balance of the available for sale securities was in the category of U.S. Treasuries and agencies securities, up from 81% in 1994. These securities provide a consistent source of liquidity, and are readily acceptable from a credit risk perspective. The increase in rates earned during 1995 of 111 basis points more than offset the reduction in the average balances, thereby producing a 6.1% increase in the taxable equivalent interest income to $22.5 million in 1995. Also, TrustCo recognized $200 thousand of securities gains during 1995, as compared to $8.9 million in securities losses recognized in 1994. During much of 1994, interest rates in the securities markets were rising as a result of actions by the Federal Reserve Bank that affected the federal funds rate and the discount rate. TrustCo's response to these changes was to actively purge the securities portfolio of low yielding investments, which generally resulted in losses, and to replace them with higher yielding assets. The results of this strategy are clearly demonstrated in the significant yield increase in the securities available for sale portfolio. TrustCo does not invest in exotic investment products such as interest rate swaps, forward placement contracts, options or any other instrument commonly referred to as a derivative. By actively managing a portfolio of high quality securities, the objectives of asset/liability management and liquidity can be met, while at the same time producing a constant earnings stream that meets or exceeds alternative rates offered in the marketplace. Securities available for sale are recorded at their fair value with any unrealized gains or losses, net of taxes, recognized as a component of shareholders' equity. At year end 1995, the market value of TrustCo's portfolio of securities available for sale had an unrealized gain of $21.1 million. Investment securities: As discussed above, there are no securities in this classification at year end 1995, compared to $347.9 million at the same time period in 1994. On average, the investment securities portfolio was $292.9 million in 1995 and earned an average yield of 7.17%, compared to the 1994 average balance of $250.8 million and an average yield of 6.81%. This resulted in an increase in interest income on these securities of $3.9 million to $21.0 million in 1995. The change in the average balance accounted for three quarters of the increase in interest income, with the remaining increase the result of the change in rates during the two time periods. SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
(in thousands) As of December 31, 1995 1994 1993 Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value Securities available for sale: U.S. Treasuries and agencies $432,710 447,343 102,947 102,919 230,563 236,471 States and political subdivisions 68,151 70,371 -- -- -- -- Mortgage-backed securities 78,481 80,284 -- -- -- -- Other 39,808 42,208 14,581 14,539 10,153 11,588 Total securities available for sale $619,150 640,206 117,528 117,458 240,716 248,059 Investment securities: U.S. Treasuries and agencies $ -- -- 145,542 141,117 228,157 237,008 States and political subdivisions -- -- 44,222 43,827 23,017 23,471 Mortgage-backed securities -- -- 143,082 134,902 138,376 142,119 Other -- -- 15,012 14,609 27,256 28,700 Total investment securities $ -- -- 347,858 334,455 416,806 431,298
The table "Securities Portfolio Maturity Distribution and Yield," distributes the securities available for sale portfolio as of December 31, 1995, based on the final maturity of the securities (mortgage-backed securities are stated using average life, and equity securities are included in the category of other securities maturing after 10 years). SECURITIES PORTFOLIO MATURITY DISTRIBUTION AND YIELD Securities available for sale:
(dollars in thousands) As of December 31, 1995 Maturing: After 1 After 5 Within But Within But Within After 1 Year 5 Years 10 Years 10 Years Total U.S. Treasuries and agencies Amortized cost $15,036 110,942 236,875 69,857 432,710 Market value 15,305 117,084 242,270 72,684 447,343 Yield 7.68% 7.60 7.48 7.72 7.56 States and political subdivisions Amortized cost $10,894 25,873 5,231 26,153 68,151 Market value 10,915 26,772 5,480 27,204 70,371 Yield 5.01% 5.31 5.40 5.67 5.41 Mortgage-backed securities Amortized cost $ -- 11,960 2,536 63,985 78,481 Market value -- 11,954 2,618 65,712 80,284 Yield --% 6.43 7.84 7.77 7.57 Other Amortized cost $ 25 -- 15,665 24,118 39,808 Market value 25 -- 17,265 24,918 42,208 Yield 5.50% -- 8.16 3.28 5.20 Total securities available for sale Amortized cost $25,955 148,775 260,307 184,113 619,150 Market value 26,245 155,810 267,633 190,518 640,206 Yield 6.56% 7.11 7.48 6.86 7.17
Maturity and call dates of securities: Many of the securities in the investment portfolio have a call date in addition to the stated maturity date. Call dates allow the issuer of the bond to redeem the bond prior to maturity at selected dates and at predetermined prices. Normally, securities are redeemed at the call date because the issuer can reissue the bond at a lower yield. Therefore, for cash flow, liquidity, and interest rate management purposes, it is important to monitor both maturity dates and call dates. The following table details the portfolio of securities available for sale, for both the maturity date and call date as of December 31, 1995. SECURITIES PORTFOLIO MATURITY AND CALL DATE DISTRIBUTION Securities available for sale:
(in thousands) As of December 31, 1995 Based on Based on Final Maturity Call Date Amortized Market Amortized Market Cost Value Cost Value Within 1 year $ 25,955 26,245 167,547 168,126 1 to 5 years 148,775 155,810 319,846 331,592 5 to 10 years 260,307 267,633 92,614 98,330 After 10 years 184,113 190,518 39,143 42,158 Total $619,150 640,206 619,150 640,206
Federal funds sold: During 1995, the average balance of these funds was $212.3 million, up from $203.9 million in 1994. The average rate earned on these funds was 5.91% for 1995 and 4.44% for 1994. TrustCo utilized this category of earning assets during 1995 as a means of keeping strong liquidity as interest rates in the securities markets changed. Rather than invest this excess liquidity during 1995, the Company chose to place these funds in overnight federal funds sold. This decision had the short term effect of suppressing potential earnings for 1995, but positioned TrustCo to take advantage of other banking opportunities as they emerge in 1996. AVERAGE BALANCES, YIELDS AND NET INTEREST MARGINS
(dollars in thousands) 1995 1994 1993 Interest Interest Interest Average Income/ Average Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate Balance Expense Rate Assets Loans, net of unearned income $1,187,929 107,544 9.05% $1,122,698 94,432 8.41% $1,044,855 87,559 8.38% Trading securities -- -- -- -- -- -- 1,731 94 5.43 Securities available for sale: U.S. Treasuries and agencies 255,244 19,490 7.64 269,378 17,142 6.36 182,273 12,797 7.02 States and political subdivisions 15,926 1,277 8.02 -- -- -- -- -- -- Mortgage-backed securities 8,731 597 6.84 35,172 2,122 6.03 -- -- -- Other 21,179 1,185 5.60 28,430 1,994 7.02 10,160 804 7.91 Total securities available for sale 301,080 22,549 7.49 332,980 21,258 6.38 192,433 13,601 7.07 Investment securities: U.S. Treasuries and agencies 119,989 8,968 7.47 98,380 7,128 7.24 274,398 16,913 6.16 States and political subdivisions 40,068 2,963 7.39 27,120 1,661 6.13 32,615 2,074 6.35 Mortgage-backed securities 119,113 8,005 6.72 111,691 7,254 6.50 119,442 8,444 7.07 Other 13,738 1,079 7.86 13,621 1,024 7.52 28,681 2,071 7.23 Total investment securities 292,908 21,015 7.17 250,812 17,067 6.81 455,136 29,502 6.48 Federal funds sold 212,323 12,543 5.91 203,878 9,058 4.44 163,567 4,912 3.00 Total interest earning assets 1,994,240 163,651 8.21 1,910,368 141,815 7.42 1,857,722 135,668 7.30 Allowance for loan losses (45,086) (37,334) (30,214) Cash and non-interest earning assets 124,237 121,463 119,207 Total assets $2,073,391 1,994,497 1,946,715 Liabilities and shareholders' equity Interest-bearing deposits: NOW accounts $ 230,291 4,356 1.89% $ 246,357 3,636 1.48% $ 242,876 4,224 1.74% Savings 618,933 24,248 3.92 726,295 21,725 2.99 730,264 23,306 3.19 Time deposits and money markets 911,906 49,751 5.46 741,862 34,673 4.67 701,628 33,352 4.75 Total interest-bearing deposits 1,761,130 78,355 4.45 1,714,514 60,034 3.50 1,674,768 60,882 3.64 Short-term borrowings 38,090 1,776 4.66 18,129 461 2.54 17,447 380 2.18 Long-term debt 788 69 8.75 2,840 203 7.15 3,870 357 9.22 Total interest-bearing liabilities 1,800,008 80,200 4.46 1,735,483 60,698 3.50 1,696,085 61,619 3.63 Demand deposits 97,940 93,822 92,763 Other liabilities 29,974 28,215 32,219 Shareholders' equity 145,469 136,977 125,648 Total liabilities and shareholders' equity $2,073,391 1,994,497 1,946,715 Net interest income 83,451 81,117 74,049 Net interest spread 3.75% 3.92% 3.67% Net interest margin (net interest income to total interest earning assets) 4.18 4.25 3.99 Portions of income earned on certain commercial loans, U.S. Government obligations, obligations of states and political subdivisions, and equity securities are exempt from federal and/or state taxation. Appropriate adjustments have been made to reflect the equivalent amount of taxable income that would have been necessary to generate an equal amount of after tax income. Federal and New York State tax rates used to calculate income on a tax equivalent basis were 35.0 percent and 9.68 percent for 1995, 35.0 percent and 10.13 percent for 1994, and 35.0 percent and 10.35 percent for 1993. The average balances of securities available for sale is calculated using amortized costs for these securities. Included in the balance of shareholders' equity is $3.9 million and $2.4 million in 1995 and 1994, respectively, of unrealized appreciation, net of tax, in the available for sale securities portfolio.
Interest bearing sources of funds: TrustCo utilizes various traditional sources of funds to support its asset portfolio. The following table "Average Sources of Funding" presents the various categories of funds used and the corresponding average balances for each of the last three years. AVERAGE SOURCES OF FUNDING (dollars in thousands)
Components of 95 - 94 94 - 93 Total Funding 1995 1994 1993 Change Change 1995 1994 1993 Demand deposits $ 97,940 93,822 92,763 4,118 1,059 5.2% 5.1 5.2 Retail deposits: Savings 618,933 726,295 730,264 (107,362) (3,969) 32.6 39.7 40.8 Time deposits under $100 thousand 750,141 589,573 550,294 160,568 39,279 39.5 32.2 30.8 NOW accounts 230,291 246,357 242,876 (16,066) 3,481 12.1 13.5 13.6 Money market deposits 79,618 103,622 113,632 (24,004) (10,010) 4.2 5.7 6.4 Total retail deposits 1,678,983 1,665,847 1,637,066 13,136 28,781 88.4 91.1 91.6 Total core deposits 1,776,923 1,759,669 1,729,829 17,254 29,840 93.6 96.2 96.8 Time deposits over $100 thousand 82,147 48,667 37,702 33,480 10,965 4.3 2.7 2.1 Short-term borrowings 38,090 18,129 17,447 19,961 682 2.0 1.0 0.9 Long-term debt 788 2,840 3,870 (2,052) (1,030) 0.1 0.1 0.2 Total purchased liabilities 121,025 69,636 59,019 51,389 10,617 6.4 3.8 3.2 Total sources of funding $1,897,948 1,829,305 1,788,848 68,643 40,457 100.0% 100.0 100.0
AVERAGE DEPOSITS BY TYPE OF DEPOSITOR
(in thousands) Years Ended December 31, 1995 1994 1993 1992 1991 Individuals, partnerships and corporations $1,817,762 1,752,163 1,706,530 1,605,191 948,390 U.S. Government 261 542 540 525 505 States and political subdivisions 30,784 44,289 48,145 58,439 45,101 Other (certified and official checks, etc.) 10,263 11,342 12,316 11,324 7,308 Total average deposits by type of depositor $1,859,070 1,808,336 1,767,531 1,675,479 1,001,304
Deposits: Average total deposits (including time deposits greater than $100 thousand) were $1.859 billion in 1995 compared to $1.808 billion in 1994. Deposit increases centered primarily in the time deposit category, which increased $194.0 million, or 30%, over the average balance in 1994. The demand deposit category increased 4% to $97.9 million in 1995 compared to $93.8 million in 1994. Deposit outflows were experienced in all other categories with the largest decrease occurring in the savings category. In order to stop the outflow of savings deposits, TrustCo implemented a successful marketing and advertising campaign beginning March 1995 to promote the increase of the savings account interest rate to 4%, a level which was significantly higher than that offered by any other bank in the Capital Region. As a result, savings account balances increased from $588.0 million at March 31, 1995 to $649.0 million at December 31, 1995. Past experience at TrustCo has demonstrated that once customers are attracted to the Bank as a result of a deposit generation campaign, they tend to maintain their deposit relationship with TrustCo through various interest rate cycles. It is the Company's belief that these deposits are a very stable source of core customers. These customers provide a tremendous opportunity for cross selling other banking services in addition to their deposit accounts. Interest expense on deposits increased from $60.0 million in 1994 to $78.4 million in 1995. The increase of $18.3 million was primarily due to the increase in rates paid on deposit accounts which increased to 4.45% in 1995 from the 3.50% in 1994. In addition to the deposit generating activities described previously, TrustCo also opened four new retail branches in 1995. These new branches increased the marketing territory of the Bank and contributed significantly to the deposit increases noted in 1995. For 1996, TrustCo anticipates opening three new branches. These new retail outlets will provide new sources of funding and additional opportunities for cross selling to a new depositor base. Interest expense on certificates of deposit greater than $100,000 was $4.9 million, $2.6 million and $2.1 million for the years 1995, 1994 and 1993, respectively. MATURITY OF TIME DEPOSITS OVER $100 THOUSAND
(in thousands) As of December 31, 1995 Under 3 months $26,512 3 to 6 months 11,036 6 to 12 months 18,068 over 12 months 28,594 Total $84,210
Other funding sources: The Company had $38.1 million of average short-term borrowings and $800 thousand of average long-term debt outstanding during 1995. Total purchased liabilities (which includes time deposits over $100 thousand) were $121.0 million in 1995, compared to $69.6 million in 1994. The average rate on short-term borrowings was 4.66% in 1995 and 2.54% in 1994; the average rate on long-term debt was 8.75% in 1995 and 7.15% in 1994. VOLUME AND YIELD ANALYSIS
(in thousands) 1995 vs. 1994 1994 vs. 1993 Increase Due to Due to Increase Due to Due to (Decrease) Volume Rate (Decrease) Volume Rate Interest income (TE): Federal funds sold $ 3,485 389 3,096 4,146 1,408 2,738 Trading securities -- -- -- (94) (94) -- Securities available for sale: Taxable 13 (3,164) 3,177 7,655 9,048 (1,393) Tax-exempt 1,278 1,278 -- 2 2 -- Total securities available for sale 1,291 (1,886) 3,177 7,657 9,050 (1,393) Investment securities: Taxable 2,647 2,112 535 (12,022) (14,001) 1,979 Tax-exempt 1,301 907 394 (413) (339) (74) Total investment securities 3,948 3,019 929 (12,435) (14,340) 1,905 Loans 13,112 5,662 7,450 6,873 6,143 730 Total interest income 21,836 7,184 14,652 6,147 2,167 3,980 Interest expense: NOW accounts 720 (250) 970 (588) 60 (648) Money market deposits (181) (637) 456 (460) (248) (212) Savings 2,523 (3,532) 6,055 (1,581) (126) (1,455) Time deposits under $100 thousand 12,936 8,773 4,163 1,288 1,985 (697) Time deposits over $100 thousand 2,323 1,966 357 493 585 (92) Short-term borrowings 1,315 747 568 81 16 65 Long-term debt (134) (171) 37 (154) (84) (70) Total interest expense 19,502 6,896 12,606 (921) 2,188 (3,109) Net interest income (TE) $ 2,334 288 2,046 7,068 (21) 7,089 Increases and decreases in interest income and interest expense due to both rate and volume have been allocated to the two categories of variances (volume and rate) based on the percentage relationship of such variances to each other.
The increase in short-term borrowing balances from $18.1 million in 1994 to $38.1 million in 1995 is due almost exclusively to the introduction of the Trustco Short Term Investment Account. This account was developed for the Bank's Trust Department as an investment vehicle for trust accounts. Balances are transferred daily by the Trust Department into this account and are collateralized by securities owned by the Bank. Net Interest Income Net interest income is the principal contributor to net income. Therefore, growth in net income is directly dependent upon the ability of the Company to increase net interest income. TrustCo's 1995 change in net interest income is primarily the result of increased earning asset balances invested at higher rates in 1995 compared to 1994. Taxable equivalent net interest income for 1995 was $83.5 million, up $2.3 million or 3% over 1994. The yield on average earning assets rose 79 basis points to 8.21% during 1995 while the rate paid on average interest-bearing liabilities increased 96 basis points to 4.46%. Together, this resulted in a 7 basis point decrease in the net margin to 4.18%. The changes between 1995 and 1994, as illustrated in the table "Volume and Yield Analysis," resulted in an increase in interest on earning assets of $21.8 million and an increase in interest expense of $19.5 million. The increase in the interest on earning assets was primarily the result of increases in the rates earned from 7.42% in 1994 to 8.21% in 1995. Rate changes accounted for approximately two-thirds of the total increase in interest income. The increase in interest expense is also principally the result of increases in the rates paid on interest-bearing liabilities, which rose from 3.50% in 1994 to 4.46% in 1995. As with the increase in interest income on earning assets, the increase in interest paid on interest-bearing liabilities was approximately two-thirds the result of increases in rates paid. Risk Management The responsibility for balance sheet risk management oversight is the function of the Asset Allocation Committee. This committee meets monthly and includes the executive officers of the Company as well as other department managers as appropriate. The meetings include a review of the balance sheet structure, formulation of strategy in light of expected economic conditions, and a review of performance against guidelines established to control exposure to various types of risk. Credit Risk Credit risk is managed through a network of loan officer authorities, review committees, loan policies, and oversight from the senior executives of the Company. Management follows a policy of continually identifying, analyzing, and evaluating the credit risk inherent in the loan portfolio. As a result of management's ongoing review of the loan portfolio, loans are placed in nonaccrual status, either due to the delinquent status of principal and/or interest payments, or a judgment by management that, although payment of principal and/or interest is current, such action is prudent. Loans are generally placed in nonaccrual status when principal and/or interest is 90 days past due. Thereafter, no interest is taken into income unless received in cash or until such time as the borrower demonstrates the ability to make scheduled payments of interest and principal. NONPERFORMING ASSETS
(dollars in thousands) As of December 31, 1995 1994 1993 1992 1991 Loans in nonaccrual status $12,832 6,370 10,227 17,448 11,948 Loans past due 90 days or more 1,696 4,436 6,567 10,634 8,996 Restructured loans 1,130 910 -- -- -- Total nonperforming loans 15,658 11,716 16,794 28,082 20,944 Foreclosed real estate 3,732 5,080 4,309 5,946 1,413 Total nonperforming assets $19,390 16,796 21,103 34,028 22,357 Allowance for loan losses $48,320 38,851 34,087 26,919 19,049 Allowance coverage of nonperforming loans 3.09X 3.32 2.03 0.96 0.91 Nonperforming loans as a % of total loans 1.28% 1.01 1.56 2.68 2.01 Nonperforming assets as a % of total assets 0.89 0.85 1.07 1.75 1.27
Nonperforming Assets Nonperforming assets include loans in non-accrual status, loans which have been treated as troubled debt restructurings, loans past due 90 days or more and still accruing interest, and foreclosed real estate properties. Nonperforming assets at year end 1995 totalled $19.4 million, an increase of $2.6 million from the balance at year end 1994. Nonperforming loans increased from $11.7 million in 1994 to $15.7 million in 1995. Nonperforming loans as a percentage of loans were 1.28% in 1995 and 1.01% in 1994. These percentages are well below industry and peer group averages, and reflect TrustCo's conservative lending policy and its aggressive collection and charge off policies. The increase in the nonperforming loans of $3.9 million is the result of two commercial loans reaching nonaccrual status in 1995. Both loans are well secured and management does not anticipate any loss as a result of collecting these loans. TrustCo has a very diversified loan portfolio with no concentrations to any one borrower or industry. As an indication of this diversification, there are only three loans greater than $1 million identified as nonperforming at December 31, 1995. This is significant because it demonstrates sound business judgments made by TrustCo in loan portfolio risk management. Nonperforming assets at year end 1995 included $3.7 million of foreclosed properties compared to $5.1 million in 1994. There are no other loans in the Bank's portfolio that management is aware of that pose any significant risk of the eventual non-collection of principal. As of December 31, 1995, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources. Allowance for Loan Losses The balance in the allowance for loan losses has been accumulated over the years through periodic provisions, and is available to absorb losses on loans which have been determined to be uncollectible. The adequacy of the allowance is evaluated continuously, with emphasis on nonperforming and other loans that management believes warrant special attention. The balance of the allowance is maintained at a level that is, in management's judgment, representative of the loan portfolio's inherent risk given present and anticipated future conditions. The table "Summary of Loan Loss Experience" includes an analysis of the changes to the allowance for the past five years. Loans charged off in 1995 were $7.3 million, compared to $4.8 million in 1994. Recoveries were $4.1 million in 1995 and $1.5 million in 1994. Provisions recorded in 1995 and 1994 were $12.7 million and $8.1 million, respectively. Net charge offs as a percentage of average loans were 0.27% in 1995 and 0.29% in 1994. The allowance as a percentage of loans outstanding grew to 3.94% in 1995 from 3.34% in 1994. The Company has a policy of recognizing problem loan charge offs early and aggressively pursuing collection efforts. This policy of early intervention has proven to be a cornerstone of the strong lending performance that TrustCo has achieved. TrustCo adopted the provisions of Statement of Financial Accounting Standards No. 114 (Statement 114), "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118 (Statement 118), "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosure," effective as of January 1, 1995. The enclosed consolidated financial statements have been presented in accordance with these new accounting pronouncements. The footnotes to the consolidated financial statements provide additional details with respect to the adoption and accounting requirements of these pronouncements. TrustCo has classified nonaccrual commercial and commercial real estate loans as impaired loans, as well as all loans restructured under a troubled debt restructuring since the adoption of these new accounting requirements as of January 1, 1995. At year end 1995, there were $10.0 million of impaired loans. The average balance of impaired loans during 1995 was $10.5 million and the Company recognized approximately $400 thousand of interest income on these loans during the year. Statement 114 substantially modified the definition of "in-substance foreclosure" loans. Consequently, certain loans identified at year end 1994 as being in-substance foreclosure loans and classified as real estate owned have been reclassified as of January 1, 1995 to the loan portfolio. At January 1, 1995, $9.2 million of loans previously included in real estate owned were reclassified to the loan balance. Prior to adoption of Statements 114 and 118, in-substance foreclosed properties included those properties where the borrower had little or no remaining equity in the property, considering its fair value; where repayment was expected to come only from the operation or sale of the property; and where the borrower had effectively abandoned control of the property or it was doubtful the borrower would be able to rebuild equity in the property. SUMMARY OF LOAN LOSS EXPERIENCE
(dollars in thousands) 1995 1994 1993 1992 1991 Amount of loans outstanding at end of year (less unearned income) $1,226,142 1,161,789 1,075,564 1,049,215 1,042,185 Average loans outstanding during year (less average unearned income) 1,187,929 1,122,698 1,044,855 1,025,480 625,031 Balance of allowance at beginning of year 38,851 34,087 26,919 19,049 13,446 Loans charged off: Commercial 4,823 3,864 5,866 4,857 1,129 Real estate 1,694 53 199 125 70 Installment 821 907 676 1,015 616 Total 7,338 4,824 6,741 5,997 1,815 Recoveries of loans previously charged off: Commercial 3,504 1,125 1,810 327 23 Real estate 258 -- -- -- -- Installment 347 407 523 847 174 Total 4,109 1,532 2,333 1,174 197 Net loans charged off 3,229 3,292 4,408 4,823 1,618 Additions to allowance charged to operating expense 12,698 8,056 11,576 12,693 6,490 Allowance of acquired bank -- -- -- -- 731 Balance of allowance at end of year $ 48,320 38,851 34,087 26,919 19,049 Net charge offs as a percent of average loans outstanding during year (less average unearned income) 0.27% 0.29 0.42 0.47 0.26 Allowance as a percent of loans outstanding at end of year 3.94 3.34 3.17 2.57 1.83
Interest Rate Risk Management of interest rate risk involves continual monitoring of the relative sensitivity of asset and liability portfolios to changes in rates due to maturities or repricing. Forecasting models are utilized to quantify the impact of changes in rates on the Company's net income. Specific targets for interest rate sensitivity have been established by the Company. Interest rate sensitivity is a function of the repricing of assets and liabilities through maturity and interest rate changes. The objective is to maintain an appropriate balance between income growth and the risk associated with maximizing income through the mismatch of the timing of interest rate changes between assets and liabilities. Perfectly matching this funding can eliminate interest rate risk but net interest income is not always enhanced. One measure of interest rate risk, the so called "gap," is illustrated in the table "Interest Rate Sensitivity." The table measures the incremental and cumulative gap, or the difference between assets and liabilities subject to repricing/maturity during the periods indicated. For purposes of this analysis the maturity and repricing of loans is based on the stated maturity or earliest repricing date. For securities available for sale, the earlier of average life or stated maturity is used. NOW, money market, demand, and savings accounts are presented with a maturity or repricing cycle over the full interest rate cycle and TrustCo's actual experience, even though they are subject to immediate withdrawal. Time deposit accounts are presented based upon their maturity dates. INTEREST RATE SENSITIVITY
(dollars in thousands) At December 31, 1995 Repricing, or able to be repriced, in: 0-90 91-365 1-5 Over 5 Rate Days Days Years Years Insensitive Total Assets: Federal funds sold $239,000 -- -- -- -- 239,000 Securities available for sale 28,863 30,575 188,332 380,119 12,317 640,206 Loans, net of unearned income 334,862 182,247 151,956 557,077 -- 1,226,142 Noninterest rate sensitive assets -- -- -- -- 70,837 70,837 Total assets 602,725 212,822 340,288 937,196 83,154 2,176,185 Cumulative total assets 602,725 815,547 1,155,835 2,093,031 2,176,185 2,176,185 Liabilities and shareholders' equity: Deposits: Interest bearing deposits 218,363 440,548 906,514 253,481 -- 1,818,906 Noninterest bearing deposits 4,007 11,971 63,844 31,921 -- 111,743 Total deposits 222,370 452,519 970,358 285,402 -- 1,930,649 Borrowings 56,654 -- -- -- -- 56,654 Noninterest rate sensitive liabilities -- -- -- -- 28,783 28,783 Shareholders' equity -- -- -- -- 160,099 160,099 Total liabilities and shareholders' equity 279,024 452,519 970,358 285,402 188,882 2,176,185 Cumulative total liabilities and shareholders' equity $279,024 731,543 1,701,901 1,987,303 2,176,185 2,176,185 Incremental gap: Interest sensitivity gap $323,701 (239,697) (630,070) 651,794 Gap as a % of earning assets 15.38% (11.39) (29.93) 30.96 Interest sensitive assets to liabilities 219.16 48.31 37.54 369.73 Cumulative gap: Interest sensitivity gap $323,701 84,004 (546,066) 105,728 Gap as a % of earning assets 15.38% 3.99 (25.94) 5.02 Interest sensitive assets to liabilities 219.16 113.97 71.26 111.60
At December 31, 1995, the Company's gap position indicates an excess of assets repricing in the 0-90 day period of $323.7 million. This positive gap position is significantly enhanced by the $239.0 million federal funds balance at year end. The gap position turns negative in the 91 to 365 day period and in the 1 to 5 year period. This situation reflects the significant amount of time deposits that mature in these time bands. Over 5 years, the gap position again reflects an excess of repricing assets over liabilities of $651.8 million. In evaluating interest rate sensitivity at year end 1995, the Company would have a slight benefit from an increase in interest rates, as the Bank would be able to redeploy short-term assets that are repricing into higher yielding investments. Conversely, the Company would be slightly disadvantaged given a decrease in interest rates, since the assets that are repricing would do so at lower interest rates. The Company's gap position is constantly under evaluation by the Asset Allocation Committee in relation to products, services, and the marketplace. There are significant shortcomings inherent in the method of analysis presented in the Interest Rate Sensitivity table. For example, although certain assets and liabilities have similar periods to maturity or to repricing, they may react in different degrees to changes in market rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while other interest rates may lag behind changes in market rates. Additionally, certain assets have features which restrict changes in interest rates on a short-term basis and over the life of the asset (certain annual caps and lifetime caps). Further, in the event of significant changes in interest rates, prepayment and early withdrawal levels would be likely to deviate significantly from those assumed in the table. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase. Management takes these factors into account when reviewing the Bank's gap position and establishing future asset/liability strategy. Liquidity Risk TrustCo seeks to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. In addition to serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer initiated needs. Many factors affect the ability to meet liquidity needs, including variations in the markets served by the Bank's network of branches, the mix of assets and liabilities, and general economic conditions. The Company actively manages its liquidity position through target ratios established under the Asset/Liability Management policies. Continual monitoring of these ratios, both historically and through forecasts under multiple interest rate scenarios, allows TrustCo to employ strategies necessary to maintain adequate liquidity levels. Management has also developed various liquidity alternatives should abnormal situations arise. The Company achieves its liability based liquidity objectives in a variety of ways. Net liabilities can be classified into three categories for the purposes of managing liability based liquidity: net core deposits, purchased money, and capital market funds. TrustCo seeks deposits that are dependable and predictable, ones that are based as much on interest rate as they are on the level and quality of service. At December 31, 1995, core deposits representing total deposits less those time deposits greater than $100,000, amounted to $1.846 billion. Average balances of core deposits are detailed in the table "Average Sources of Funding." In addition to core deposits, another funding source available to TrustCo is purchased money. These are principally long-term and short-term borrowings, federal funds purchased, securities sold under repurchase agreements, and time deposits greater than $100,000. The average balances of these purchased liabilities are detailed in the table "Average Sources of Funding." During 1995, the average balance in purchased liabilities was $121.0 million, compared with $69.6 million in 1994, and $59.0 million in 1993. Off-Balance Sheet Risk Commitments to extend credit: TrustCo makes contractual commitments to extend credit, and extends lines of credit which are subject to the Bank's credit approval and monitoring procedures. At December 31, 1995 and 1994, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $220.8 million and $217.3 million respectively. In management's opinion, there are no material commitments to extend credit that represent unusual risk. Letters of credit and standby letters of credit: TrustCo guarantees the obligations or performance of customers by issuing letters of credit and standby letters of credit to third parties. These letters of credit are frequently issued in support of third party debt, such as corporate debt issuances, industrial revenue bonds, and municipal securities. The risk involved in issuing letters of credit and standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and they are subject to the same credit origination, portfolio maintenance, and management procedures in effect to monitor other credit and off-balance sheet products. At December 31, 1995 and 1994, outstanding letters of credit and standby letters of credit were approximately $19.0 million and $20.8 million, respectively. Other Off-Balance Sheet Risk: TrustCo does not engage in activities involving interest rate swaps, forward placement contracts, options, or any other instrument commonly referred to as a "derivative." Management believes these instruments pose a high degree of risk, and that investing in them is unnecessary. NONINTEREST INCOME
(dollars in thousands) 1995 vs. 1994 1995 1994 1993 Amount Percent Trust department income $ 4,890 4,850 4,347 40 0.8% Fees for other services to customers 7,003 7,007 6,489 (4) 0.1 Net gain (loss) on securities transactions 243 (8,877) 6,239 9,120 102.7 Other 1,931 1,580 2,101 351 22.2 Total noninterest income $14,067 4,560 19,176 9,507 208.5%
Noninterest Income and Expense Noninterest income: Noninterest income is a significant source of revenue for the Company and an important factor in the overall results for the year. Total noninterest income was $14.1 million for 1995 compared to $4.6 million in 1994. Included in the 1995 results are $200 thousand of securities gains compared to securities losses of $8.9 million during the comparable period in 1994. Excluding these securities transactions, noninterest income would have been $13.8 million and $13.4 million in 1995 and 1994, respectively. As noted earlier, these securities losses for 1994 were realized in an effort to reinvest the available for sale portfolio at the year end higher interest rates. Therefore, future periods will benefit from these enhanced rates. The Trust Department contributes the largest recurring portion of noninterest income through fees generated by the performance of fiduciary services. Income from these fiduciary activities totalled $4.9 million in both 1995 and in 1994. Changes in the other categories of noninterest income reflect the fee scale used by the Bank for pricing its services. NONINTEREST EXPENSE
(dollars in thousands) 1995 vs. 1994 1995 1994 1993 Amount Percent Salaries and employee benefits $19,895 18,323 16,649 1,572 8.6% Net occupancy expense of bank premises 4,562 3,479 3,439 1,083 31.1 Equipment expense 3,403 3,363 3,650 40 1.2 FDIC insurance expense 2,101 4,071 3,985 (1,970) (48.4) Professional services 3,585 2,548 2,508 1,037 40.7 Other real estate expenses 3,120 1,016 4,679 2,104 207.1 Other 7,774 7,760 8,592 14 0.2 Total noninterest expense $44,440 40,560 43,502 3,880 9.6%
Noninterest expense: Noninterest expense was $44.4 million in 1995, $40.6 million in 1994, and $43.5 million in 1993. TrustCo's operating philosophy stresses the importance of monitoring and controlling the level of noninterest expense. The efficiency ratio is a strong indicator of how well controlled and monitored these expenses are for a banking enterprise. TrustCo's efficiency ratio was 42.52% for 1995, 41.82% for 1994, and 44.63% for 1993. Industry goals look for the attainment of a 60% efficiency ratio. TrustCo outperformed the industry on this ratio for 1993, 1994, and 1995. Salaries and employee benefits are the most significant component of noninterest expense. At year end 1995, these expenses amounted to $19.9 million, compared to $18.3 million and $16.6 million for 1994 and 1993, respectively. The increase in salaries and employee benefits reflects the addition of four new branches during 1995, merit increases, and raises given to the Bank staff. Increased costs for benefits, such as health insurance and retirement benefits, account for the remainder of the increase. During 1995, FDIC insurance premiums decreased by $2.0 million compared to 1994 as a result of the reduction and eventual elimination of the insurance premium on the TrustCo deposits. Net occupancy expenses have increased by $1.1 million due to the four new branch facilities opened during 1995 and a write down on selected bank premises recognized in 1995. Professional services increased by $1.0 million in 1995 over 1994, which was almost equal to 1993 expenses. The increase in 1995 expense was the result of costs associated with resolving certain litigation relative to nonperforming loans. Other real estate expense is also up by $2.1 million over 1994 due to the cost of disposing of or preparing for sale certain properties that had been acquired through foreclosure. Income Tax In 1995, TrustCo recognized income tax expense of $12.8 million as compared to $12.6 million in 1994 and $12.5 million in 1993. The tax expense on the Company's income was lower than tax expense at the statutory rate of 35% due primarily to tax exempt income and the reduction of the deferred tax asset valuation reserve, offset in part by state income taxes, net of the federal tax benefit. Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. During 1995, the valuation reserve was reduced as a result of the resolution of several tax return audits and management's reassessment of the realization of certain deferred tax assets. The valuation allowance of $2.1 million at December 31, 1995, is primarily reserved for federal and state tax law restrictions on the deductibility of certain temporary differences. The valuation allowance of $4.7 million at December 31, 1994 was reserved primarily for federal and state tax law restrictions on the deductibility of certain temporary differences, as well as uncertainty regarding the ultimate realization of certain other deferred tax assets. Based primarily on the sufficiency of historical and future taxable income, management believes it is more likely than not that the remaining net deferred tax asset of $30.4 million and $20.6 million at December 31, 1995 and 1994, respectively, will be realized. Capital Resources Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios. New issues of equity securities have not been required, since most of the Company's capital requirements have been provided through retained earnings. Part of TrustCo's operating philosophy is that the Company will not retain any excess capital. All capital that is generated by the Company that is in excess of the levels considered by management to be necessary for the safe and sound operations of the Company has been distributed to the shareholders in the form of cash dividends. Consequently, the capital ratios that are maintained are adequate but not excessive. This philosophy has led to a dividend payout ratio for 1995 of 69.55%, 1994 of 62.52%, and 1993 of 56.88%. These are significant payouts to the Company's shareholders and are considered by management to be a prudent use of the retained capital in TrustCo. As to the likelihood of future dividends, the philosophy stated above will continue into 1996 and, where appropriate, the Board of Directors will declare dividends consistent with that operating philosophy. At December 31, 1995, TrustCo's Tier 1 capital was $147.7 million or 12.45% of risk adjusted assets. The Tier 1 capital to total assets or the leverage ratio at December 31, 1995 was 7.36% as compared to 7.05% in 1994 and 6.59% in 1993. At December 31, 1995 the subsidiary bank, Trustco Bank, met the regulatory definition of a "well capitalized" institution. The Bank converted to a nationally chartered bank in early 1995 and changed its legal name to Trustco Bank, National Association. All of the operations of the Bank were consistent with those allowed of a nationally chartered bank. The national charter allowed the Bank to streamline its regulatory process by having the Office of the Comptroller of the Currency as the primary bank regulator. As mentioned earlier, TrustCo will be expanding its branch network by three locations in 1996. It is not anticipated that additional capital will be required to support this expansion program. Likewise, operating costs during 1996 can be expected to rise modestly as a result of these new branches, but will be offset by the additional revenue generated by the new branches. Impact of Inflation and Changing Prices The consolidated financial statements have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increasing costs of operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary. FIVE YEAR SUMMARY OF FINANCIAL DATA
(dollars in thousands, except per share data) Years Ended December 31, 1995 1994 1993 1992 1991 Statement of income data: Interest income $ 161,552 140,282 133,657 143,260 100,805 Interest expense 80,200 60,698 61,619 76,401 58,252 Net interest income 81,352 79,584 72,038 66,859 42,553 Provision for loan losses 12,698 8,056 11,576 12,693 6,490 Net interest income after provision for loan losses 68,654 71,528 60,462 54,166 36,063 Noninterest income 14,067 4,560 19,176 15,433 9,847 Noninterest expense 44,440 40,560 43,502 42,771 28,193 Income before income taxes 38,281 35,528 36,136 26,828 17,717 Income tax expense 12,754 12,640 12,516 9,325 4,856 Income before cumulative effect of change in accounting principle 25,527 22,888 23,620 17,503 12,861 Cumulative effect of a change in accounting principle -- -- (3,295) -- -- Net income $ 25,527 22,888 20,325 17,503 12,861 Share data: Average equivalent shares outstanding (in thousands) 18,035 17,863 17,764 17,527 13,428 Book value $ 9.08 7.94 7.44 6.93 6.44 Cash dividends 1.01 0.82 0.66 0.52 0.43 Net income 1.42 1.28 1.14 1.00 0.96 Financial ratios: Return on average assets 1.23% 1.15 1.04 0.95 1.12 Return on average shareholders' equity 18.03 17.01 16.18 15.06 17.16 Cash dividend payout ratio 69.55 62.52 56.88 51.05 45.00 Tier 1 capital as a % of total risk adjusted assets 12.45 12.08 12.18 11.39 10.45 Total capital as a % of total risk adjusted assets 13.73 13.35 13.45 12.64 11.70 Efficiency ratio 42.52 41.82 44.63 51.96 48.51 Net interest margin 4.18 4.25 3.99 3.94 4.20 Average balances: Total assets $2,073,391 1,994,497 1,946,715 1,852,180 1,149,775 Earning assets 1,994,240 1,910,368 1,857,722 1,763,450 1,085,868 Loans, net 1,187,929 1,122,698 1,044,855 1,025,480 625,031 Allowance for loan losses (45,086) (37,334) (30,214) (23,735) (16,139) Securities available for sale 301,080 332,980 192,433 55,716 -- Investment securities 292,908 250,812 455,136 568,825 418,295 Deposits 1,859,070 1,808,336 1,767,531 1,675,479 1,001,304 Short-term borrowings 38,090 18,129 17,447 25,520 42,990 Long-term debt 788 2,840 3,870 5,000 5,000 Shareholders' equity 145,469 136,977 125,648 116,238 74,951 Average shareholders' equity excludes the market adjustment for securities available for sale.
As a result, changes in interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation, since interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. Impact of Changes in Accounting Standards Accounting for Postretirement Benefits Other than Pensions: On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (Statement 106), "Employers' Accounting for Postretirement Benefits Other than Pensions." In implementing the new accounting standard, the Company recorded a one time transition charge of $3.3 million, net of tax benefits, which is reflected as a cumulative effect of a change in accounting principle in the 1993 consolidated statement of income. Accounting for Income Taxes: On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (Statement 109), "Accounting for Income Taxes." Statement 109 significantly changed the method of accounting for income taxes for financial statement purposes without affecting the actual cash tax liability. In adopting Statement 109, the Company elected not to restate prior period financial results. The implementation of Statement 109 had no material impact on the 1993 results of operations. The Company's complete disclosure related to Statement 109 is included in the notes to the consolidated financial statements. Accounting by Creditors for Impairment of a Loan: The Company adopted Statements 114 and 118 effective as of January 1, 1995. These statements require that an impaired loan be measured at the present value of expected cash flows. The Statements also narrow the application of the concept of in-substance foreclosure to situations where the creditor has received physical possession of the debtor's collateral. The adoption of Statements 114 and 118 did not have a material impact on the financial condition or results of operations of the Company. Accounting for Certain Investments in Debt and Equity Securities: The Company adopted Statement of Financial Accounting Standards No. 115 (Statement 115), "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994. Upon adoption of Statement 115, the Company identified securities that are "available for sale" and those that are "held to maturity" (the Company has no trading account assets as prescribed by Statement 115). Securities classified as available for sale are those that can be sold in response to changes in market interest rates, liquidity requirements, or other investment alternatives. Securities classified as held to maturity are not available for sale and are held until contractual maturity or call. Securities available for sale are recorded at market value with the unrealized appreciation and depreciation, net of tax, recorded as an element of shareholders' equity. Securities identified as held to maturity are recorded at amortized cost. Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of: In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (Statement 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Various assets are excluded from the scope of Statement 121, including financial instruments which constitute the majority of the Company's assets. For long-lived assets included in the scope of Statement 121, such as premises and equipment, an impairment loss must be recognized when the estimate of total undiscounted future cash flows attributable to the asset is less than the asset's carrying amount. The Company will adopt Statement 121 in the first quarter of 1996. Management anticipates that the adoption of Statement 121 will not have a material effect on the Company's consolidated financial statements. Accounting for Stock-Based Compensation: In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (Statement 123), "Accounting for Stock-Based Compensation," which establishes a fair value based method of accounting for stock options, such as the Company's stock option plans. Under Statement 123, entities can recognize stock-based compensation expense in the basic financial statements using either (1) the intrinsic value based approach set forth in the Accounting Principles Board Opinion No. 25 (APB Opinion 25), or (2) the fair value based method introduced in Statement 123. Companies electing to remain with the accounting in APB Opinion 25 must make pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting defined in Statement 123 had been applied. Under the method currently utilized by TrustCo (APB Opinion 25), compensation expense is determined based upon the option's intrinsic value. Under the fair value based method introduced by Statement 123, compensation expense is based on the estimate of the option's fair value at the grant date and is generally recognized over the vesting period. Management anticipates that it will elect to continue to measure stock-based compensation costs in accordance with APB Opinion 25 and will adopt the pro forma disclosure requirements of Statement 123 in 1996. ~~ SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION (dollars in thousands, except per share data)
1995 1994 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Income statement: Interest income $38,104 39,959 41,506 41,983 161,552 32,684 34,726 36,215 36,657 140,282 Interest expense 17,210 19,873 21,407 21,710 80,200 14,666 15,069 15,342 15,621 60,698 Net interest income 20,894 20,086 20,099 20,273 81,352 18,018 19,657 20,873 21,036 79,584 Provision for loan losses 3,573 3,045 3,120 2,960 12,698 1,827 1,886 2,778 1,565 8,056 Net interest income after provision for loan losses 17,321 17,041 16,979 17,313 68,654 16,191 17,771 18,095 19,471 71,528 Noninterest income 3,449 3,986 3,647 2,985 14,067 3,314 (402) 838 810 4,560 Noninterest expense 11,751 11,862 10,695 10,132 44,440 11,409 8,808 9,599 10,744 40,560 Income before income taxes 9,019 9,165 9,931 10,166 38,281 8,096 8,561 9,334 9,537 35,528 Income tax expense 3,114 3,059 3,335 3,246 12,754 2,800 3,085 3,420 3,335 12,640 Net income 5,905 6,106 6,596 6,920 25,527 5,296 5,476 5,914 6,202 22,888 Per share data: Net income .33 .34 .36 .38 1.42 .30 .31 .33 .35 1.28 Cash dividends declared .23 .23 .28 .28 1.01 .19 .19 .21 .23 .82
Glossary of Terms Book Value Per Share Total shareholders' equity divided by shares outstanding on the same dates. This provides an indication of the book value of a share of stock. Cash Dividends Per Share Total cash dividends declared divided by average shares outstanding for the period. Derivative Investments Investments in futures contracts, forwards, swaps, or option contracts, or other investments with similar characteristics. Earning Assets The sum of interest-bearing deposits with banks, securities available for sale, investment securities, loans, net of unearned income, in accrual status and federal funds sold. Earnings Per Share Net income divided by the average shares of common stock outstanding during the period including the effect of stock options. Efficiency Ratio Noninterest expense (excluding nonrecurring charges and other real estate expense) divided by taxable equivalent net interest income plus noninterest income (excluding securities transactions). This is an indicator of the total cost of operating the Company in relation to total income generated. Impaired Loans Loans, principally commercial, where it is probable that the borrower will be unable to make the principal and interest payments according to the contractual terms of the loan, and all loans restructured subsequent to January 1, 1995. Interest-Bearing Liabilities The sum of interest-bearing deposits, federal funds purchased, securities sold under agreements to repurchase, other short-term borrowings, and long-term debt. Interest Rate Spread The difference between the taxable equivalent yield on earning assets and the rate paid on interest bearing liabilities. Liquidity The ability to meet both loan commitments and deposit withdrawals as they come due. Net Interest Margin Fully taxable equivalent net interest income as a percentage of average earning assets. Net Loans Charged Off Reductions to the allowance for loan losses written off as losses, net of the recovery of loans previously charged off. Nonaccrual Loans Loans for which no periodic accrual of interest income is recognized. Nonperforming Assets The sum of nonperforming loans plus real estate owned. Nonperforming Loans The sum of loans in a nonaccrual status (for purposes of interest recognition) plus loans whose repayment criteria have been renegotiated to less than market terms due to the inability of the borrowers to repay the loan in accordance with its original terms plus accruing loans 90 days or more past due as to principal or interest payments. Parent Company A company that owns or controls a subsidiary through the ownership of voting stock. Real Estate Owned Real estate acquired through foreclosure proceedings. Return on Average Assets Net income as a percentage of average total assets. Return on Average Equity Net income as a percentage of average equity, excluding the impact of the mark to market adjustment for securities available for sale. Taxable Equivalent (TE) Tax exempt income that has been adjusted to an amount that would yield the same after tax income had the income been subject to taxation at the statutory Federal and/or state income tax rates. Management's Statement of Responsibilities The management of TrustCo Bank Corp NY (the "Company") is responsible for the preparation, content, and integrity of the financial statements and other statistical data and analyses compiled for this report. The consolidated financial statements and related notes have been prepared in conformity with generally accepted accounting principles and, in the judgment of management, present fairly and consistently the Company's financial position, results of operations, and cash flows. Management also believes that financial information elsewhere in this report is consistent with that in the financial statements. The amounts contained in the financial statements are based on management's best estimates and judgments. The Company maintains a system of internal controls and accounting procedures designed to provide reasonable assurance as to the protection of assets and the integrity of the financial statements. These procedures include management's evaluation of asset quality, organizational arrangements that provide an appropriate division of responsibilities, and a program of internal audits to evaluate independently the adequacy and application of financial and operating controls. The Board of Directors discharges its responsibility for TrustCo's financial statements through its Audit Committee, which is composed entirely of outside directors and has responsibility for the recommendation of the independent auditors. Management has made an assessment of the Company's internal control structure and procedures covering financial reporting using established and recognized criteria. On the basis of this assessment, management believes that the Company maintained an effective system of internal controls for financial reporting as of December 31, 1995. Robert A. McCormick President and Chief Executive Officer Robert T. Cushing Vice President and Chief Financial Officer January 26, 1996 Independent Auditors' Report The Board of Directors and Shareholders of TrustCo Bank Corp NY: We have audited the accompanying consolidated statements of condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TrustCo Bank Corp NY and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in note 5 to the consolidated financial statements, effective January 1, 1995, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" which prescribe recognition criteria for loan impairment and measurement methods for impaired loans. As discussed in note 4 to the consolidated financial statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which changed its method of accounting for certain investments in debt and equity securities. As discussed in note 9 to the consolidated financial statements, the Company also adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" in 1993 which changed its method of accounting for postretirement benefits other than pensions. Albany, New York January 26, 1996 Consolidated Statements of Income
(dollars in thousands, except per share data) Years Ended December 31, 1995 1994 1993 Interest income: Interest and fees on loans $107,060 93,873 86,965 Interest and dividends on: U.S. Treasuries and agencies 28,193 23,841 28,976 States and political subdivisions 2,902 1,129 1,416 Mortgage-backed securities 8,602 9,376 8,444 Other 2,252 3,005 2,944 Interest on federal funds sold 12,543 9,058 4,912 Total interest income 161,552 140,282 133,657 Interest expense: Interest on deposits: 78,355 60,034 60,882 Interest on short-term borrowings 1,776 461 380 Interest on long-term debt 69 203 357 Total interest expense 80,200 60,698 61,619 Net interest income 81,352 79,584 72,038 Provision for loan losses 12,698 8,056 11,576 Net interest income after provision for loan losses 68,654 71,528 60,462 Noninterest income: Trust department income 4,890 4,850 4,347 Fees for other services to customers 7,003 7,007 6,489 Net gain/(loss) on securities transactions 243 (8,877) 6,239 Other 1,931 1,580 2,101 Total noninterest income 14,067 4,560 19,176 Noninterest expense: Salaries and employee benefits 19,895 18,323 16,649 Net occupancy expense of bank premises 4,562 3,479 3,439 Equipment expense 3,403 3,363 3,650 FDIC insurance expense 2,101 4,071 3,985 Professional services 3,585 2,548 2,508 Other real estate expenses 3,120 1,016 4,679 Other 7,774 7,760 8,592 Total noninterest expense 44,440 40,560 43,502 Income before income taxes and cumulative effect of a change in accounting principle 38,281 35,528 36,136 Income taxes 12,754 12,640 12,516 Income before cumulative effect of a change in accounting principle 25,527 22,888 23,620 Cumulative effect at January 1, 1993 of a change in accounting principle -- -- (3,295) Net income $ 25,527 22,888 20,325 Earnings per common share: Income before cumulative effect of a change in accounting principle $ 1.42 1.28 1.33 Cumulative effect at January 1, 1993 of a change in accounting principle -- -- (.19) Net income per common share $ 1.42 1.28 1.14 Average equivalent shares outstanding were 18,035,000 for 1995, 17,863,000 for 1994, and 17,764,000 for 1993. Per share data has been adjusted for a 6 for 5 stock split in August 1995, a 10% stock dividend in 1994, and a 2 for 1 stock split in 1993. See accompanying notes to consolidated financial statements.
Consolidated Statements of Condition
(dollars in thousands, except per share data) As of December 31, 1995 1994 ASSETS Cash and due from banks $ 50,889 52,479 Federal funds sold 239,000 263,000 Total cash and cash equivalents 289,889 315,479 Securities available for sale 640,206 117,458 Investment securities (approximate market value $334,455 at December 31, 1994) -- 347,858 Loans 1,227,926 1,163,758 Less: Unearned income 1,784 1,969 Allowance for loan losses 48,320 38,851 Net loans 1,177,822 1,122,938 Bank premises and equipment 25,008 23,877 Real estate owned 3,732 5,080 Other assets 39,528 42,987 Total assets $2,176,185 1,975,677 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand $ 111,743 93,496 Savings 649,033 663,778 NOW accounts 231,107 247,834 Money market deposit accounts 69,434 92,965 Certificates of deposit (in denominations of $100,000 or more) 84,210 62,511 Other time accounts 785,122 629,247 Total deposits 1,930,649 1,789,831 Short-term borrowings 56,654 12,713 Accrued expenses and other liabilities 28,783 30,300 Long-term debt -- 3,550 Total liabilities 2,016,086 1,836,394 Shareholders' equity: Capital stock; $1 par value. Shares authorized 25,000,000; 18,134,708 and 15,018,448 shares issued at December 31, 1995 and 1994, respectively 18,135 15,018 Surplus 116,128 118,352 Undivided profits 14,720 6,948 Net unrealized gain/(loss) on securities available for sale 12,363 (41) Treasury stock; 496,646 and 401,022 shares, at cost, at December 31, 1995 and 1994, respectively (1,247) (994) Total shareholders' equity 160,099 139,283 Total liabilities and shareholders' equity $2,176,185 1,975,677 See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
(dollars in thousands, except per share data) Three Years Ended December 31, 1995 Net Unrealized Gain/(Loss) On Securities Capital Undivided Available Treasury Stock Surplus Profits For Sale Stock Beginning balance, January 1, 1993 $ 6,771 98,115 16,566 -- (1,023) Net income -- 1993 -- -- 20,325 -- -- Cash dividend declared, $.66 per share -- -- (11,560) -- -- Stock options exercised, 23,919 shares 24 444 -- -- -- Sale of 5,300 treasury shares to benefit plans -- 189 -- -- 29 2 for 1 stock split (6,793,022 shares) 6,793 (6,793) -- -- -- Ending balance, December 31, 1993 13,588 91,955 25,331 -- (994) Net income -- 1994 -- -- 22,888 -- -- Cash dividend declared, $.82 per share -- -- (14,310) -- -- Stock options exercised, 65,282 shares 65 801 -- -- -- Net unrealized loss on securities available for sale -- -- -- (41) -- 10% stock dividend (1,365,122 shares) 1,365 25,596 (26,961) -- -- Ending balance, December 31, 1994 15,018 118,352 6,948 (41) (994) Net income -- 1995 -- -- 25,527 -- -- Cash dividend declared, $1.01 per share -- -- (17,755) -- -- Stock options exercised, 99,544 shares 100 793 -- -- -- 6 for 5 stock split (3,016,716 shares) 3,017 (3,017) -- -- -- Treasury stock purchased -- -- -- -- (253) Change in net unrealized gain/(loss) on securities available for sale -- -- -- 12,404 -- Ending balance, December 31, 1995 $18,135 116,128 14,720 12,363 (1,247) Per share data adjusted for a 6 for 5 stock split in 1995, a 10% stock dividend in 1994, and a 2 for 1 stock split in1993. See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(in thousands) For the Years Ended December 31, 1995 1994 1993 Increase/(decrease) in cash and cash equivalents Cash flows from operating activities: Net income before change in accounting principle $ 25,527 22,888 23,620 Change in accounting principle -- -- (3,295) Net income 25,527 22,888 20,325 Adjustments to reconcile net income to net cash provided by/ (used in) operating activities: Depreciation and amortization 3,640 2,749 2,373 Provision for loan losses 12,698 8,056 11,576 Provision for deferred tax expense/(benefit) (9,811) (2,981) 46 Net (gain)/loss on sale or call of securities available for sale (284) 8,883 (5,865) Net (gain)/loss on maturities and calls of investment securities and trading assets 41 (6) (374) Purchase of trading securities -- -- (1,940) (Increase)/decrease in taxes receivable 4,044 (1,003) (1,505) (Increase)/decrease in interest receivable (3,586) 488 3,345 Increase/(decrease) in interest payable 954 318 (4,881) (Increase)/decrease in other assets 6,711 1,551 (9,066) Increase/(decrease) in accrued expenses (3,300) 3,154 3,354 Total adjustments 11,107 21,209 (2,937) Net cash provided by operating activities 36,634 44,097 17,388 Cash flows from investing activities: Proceeds from sales of securities available for sale 243,597 1,015,688 99,475 Proceeds from maturities and calls of securities available for sale 48,106 42,558 -- Purchase of securities available for sale (504,525) (770,617) (153,596) Proceeds from sales of investment securities -- -- 1,877 Proceeds from maturities and calls of investment securities 62,514 80,717 229,288 Purchase of investment securities (3,212) (182,981) (159,540) Net increase in loans (75,287) (99,396) (37,769) Proceeds from sales of real estate owned 3,931 9,109 6,091 Capital expenditures (2,271) (1,733) (2,210) Net cash provided by/(used in) investing activities (227,147) 93,345 (16,384) Cash flows from financing activities: Net increase/(decrease) in deposits 140,818 (4,401) 22,926 Net increase/(decrease) in short-term borrowing 43,941 (5,610) (2,526) Repayment of long-term debt (3,550) -- (5,000) Proceeds from issuance of long-term debt -- 800 2,750 Proceeds from issuance of common stock 893 866 468 Proceeds from sale of treasury stock -- -- 218 Payments to acquire treasury stock (253) -- -- Dividends paid (16,926) (13,595) (10,888) Net cash provided by/(used in) financing activities 164,923 (21,940) 7,948 Net increase/(decrease) in cash and cash equivalents (25,590) 115,502 8,952 Cash and cash equivalents at beginning of year 315,479 199,977 191,025 Cash and cash equivalents at end of year $289,889 315,479 199,977 Supplemental disclosure of cash flow information: Interest paid $ 79,246 60,380 66,500 Income taxes paid 18,521 16,624 8,554 Reclassification of investment securities to securities available for sale upon adoption of Statement 115 -- 384,416 -- Transfer of investment securities to securities available for sale upon adoption of the FASB special report on Statement 115 288,515 -- -- Transfer of investment securities to/(from) securities available for sale -- (213,199) 60,055 Transfer of loans to real estate owned 7,705 9,880 7,011 Transfer of building from real estate owned to premises 2,500 -- 2,557 Increase in dividends payable 829 715 672 Reclassification of trading securities to securities available for sale upon adoption of Statement 115 -- 2,106 -- Unrealized gain on securities available for sale on January 1, 1994 -- 14,037 -- Deferred tax on unrealized gain on securities available for sale on January 1, 1994 -- 5,816 -- Change in unrealized (gain)/loss on securities available for sale -- gross (21,127) (14,107) -- Change in deferred tax effect on unrealized gain/(loss) on securities available for sale 8,723 (5,787) -- See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies Basis of Presentation The accounting and financial reporting policies of TrustCo Bank Corp NY (Company or TrustCo) and Trustco Bank, National Association (Bank or Trustco) conform to general practices within the banking industry and are in accordance with generally accepted accounting principles. A description of the more significant policies follows. Consolidation The consolidated financial statements of the Company include the accounts of the subsidiaries after elimination of all significant intercompany accounts and transactions. Securities Available for Sale Securities available for sale are carried at market value with any unrealized appreciation or depreciation of value, net of tax, included as an element of the capital accounts. Management maintains an available for sale portfolio in order to provide maximum flexibility in future balance sheet management. The designation of available for sale is made at the time of purchase based upon management's intent to hold the securities for an indefinite period of time. These securities, however, would be available for sale in response to changes in market interest rates, related changes in liquidity needs, or changes in the availability of and yield on alternative investments. Unrealized losses on securities that reflect a decline in value which is other than temporary, if any, are charged to income. Nonmarketable equity securities (principally stock of the Federal Reserve Bank and the Federal Home Loan Bank) are included in securities available for sale at cost since there is no readily available market value. Gains and losses on the sale of securities available for sale are based on the amortized cost of the specific security sold. Investment Securities Securities classified as investment securities are held to maturity to meet longer term investment objectives, including yield and liquidity purposes. At the time of purchase, securities are identified as held for investment based upon the Company's intention and ability to hold the securities to maturity. Investment securities are carried at cost, adjusted for amortization of premium and accretion of discounts on a method that equates to the level yield. Unrealized losses on securities that reflect a decline in value which is other than temporary, if any, are charged to income. Loans Loans are carried at the principal amount outstanding net of unearned income and unamortized loan fees and costs, which are recognized as income over the applicable loan term. Nonperforming loans include nonaccrual loans, restructured loans, and loans which are 90 days or more past due and still accruing interest. Generally, loans are placed in nonaccrual status, either due to the delinquency status of principal and/or interest payments, or a judgment by management that, although payments of principal and/or interest are current, such action is prudent. Future payments received on nonperforming loans are recorded as interest income or principal reductions based upon management's ultimate expectation for collection. Impaired loans are commercial and commercial real estate loans in nonaccrual status and loans restructured in a troubled debt restructuring since January 1, 1995. Allowance for Loan Losses An allowance for loan losses is maintained at a level considered adequate by management to provide for potential loan losses based on consideration of the credit risk of the loan portfolio, including a review of past experience, current economic conditions, and underlying collateral value. The allowance is increased by provisions charged against income and reduced by net charge offs. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowances based on their judgments of information available to them at the time of their examination. Bank Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization computed on either the straightline or accelerated methods over the remaining useful lives of the assets. Real Estate Owned Real estate owned are assets taken through foreclosures on loans. Foreclosed assets held for sale are recorded on an individual basis at the lower of (1) fair value minus estimated costs to sell or (2) "cost" (which is the fair value at initial foreclosure). When a property is acquired, the excess of the loan balance over fair value is charged to the allowance for loan losses. Subsequent write downs are included in other noninterest expense. Income Taxes Effective January 1, 1993, TrustCo adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred taxes are recorded for the future tax consequences of events that have been recognized in the financial statements or tax returns, based upon enacted tax laws and rates. Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. Dividend Restrictions Banking regulations restrict the amount of cash dividends which may be paid during a year by the Bank to the Parent Company without the written consent of the appropriate bank regulatory agency. Based on these restrictions, the Bank could pay $20.6 million plus 1996 net profits. For all practical purposes, TrustCo could not declare dividends to shareholders materially in excess of the aggregate amount of dividends that could be paid by the Bank. Pension Plan The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation. Reclassification of Prior Year Statements It is the Company's policy to reclassify prior year financial statements to conform to the current year presentation. (2) Balances at Other Banks The Bank is required to maintain certain reserves of vault cash and/or deposits with the Federal Reserve Bank. The amount of this reserve requirement, included in cash and due from banks, was approximately $15,571,000 and $14,576,000 at December 31, 1995 and 1994, respectively. (3) Securities Available for Sale The amortized cost and approximate market value of the securities available for sale are as follows:
(in thousands) At December 31, 1995 Gross Gross Approximate Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Treasuries and agencies $432,710 14,806 173 447,343 States and political subdivisions 68,151 2,256 36 70,371 Mortgage-backed securities 78,481 1,934 131 80,284 Other 39,808 2,400 -- 42,208 Total securities available for sale $619,150 21,396 340 640,206
(in thousands) At December 31, 1994 Gross Gross Approximate Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Treasuries and agencies $102,947 32 60 102,919 Other 14,581 -- 42 14,539 Total securities available for sale $117,528 32 102 117,458
The following table distributes the securities available for sale portfolio as of December 31, 1995, based on the securities' final maturity (mortgage-backed securities are stated using average life):
(in thousands) Approximate Amortized Market Cost Value Due in one year or less $ 25,955 26,245 Due after one year through five years 148,775 155,810 Due after five years through ten years 260,307 267,633 Due after ten years 184,113 190,518 $619,150 640,206
Included in the table above are $24,118,000 at amortized cost and $24,918,000 at market value of equity securities categorized as due after 10 years. Proceeds from sales of securities available for sale during 1995, 1994, and 1993 were approximately $243,597,000, $1,015,688,000, and $99,475,000, respectively. The gross realized gains on sales of securities available for sale in 1995, 1994, and 1993 were approximately $1,220,000, $5,799,000, and $5,867,000, respectively. Gross realized losses on the sales of securities available for sale in 1995, 1994, and 1993 were $936,000, $14,682,000, and $2,000, respectively. The amortized cost of securities available for sale that have been pledged to secure public deposits and for other purposes required by law amounted to $250,090,000 and $44,430,000 at December 31, 1995 and 1994, respectively. (4) Investment Securities There were no investment securities as of December 31, 1995. The amortized cost and approximate market value of the investment securities at December 31, 1994 were as follows:
(in thousands) Gross Gross Approximate Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Treasuries and agencies $145,542 376 4,801 141,117 States and political subdivisions 44,222 125 520 43,827 Mortgage-backed securities 143,082 280 8,460 134,902 Other 15,012 -- 403 14,609 Total investment securities $347,858 781 14,184 334,455
There were no sales of investment securities during 1995 and 1994. Proceeds from sales of investment securities during 1993 were $1,877,000. Gross realized gains on sales of investment securities in 1993 were approximately $229,000 and gross realized losses on sales of investment securities in 1993 were approximately $21,000. The book value of investment securities pledged to secure public deposits and for other purposes required by law was $135,050,000 at December 31, 1994. The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. The Company classified certain of the investment securities as being available for sale and reclassified these balances to a separate line on the consolidated statement of condition. In December 1995, the Company reclassified the entire portfolio of investment securities to the category of securities available for sale. This reclassification was made in response to a one-time transfer allowed by the Financial Accounting Standards Board and the various federal banking regulators. (5) Loans and Allowance for Loan Losses A summary of loans by category is as follows:
(in thousands) At December 31, 1995 1994 Commercial $ 225,174 229,944 Real estate Construction 11,239 12,935 Residential mortgage loans 760,276 677,691 Home equity line of credit 194,744 207,517 Installment loans 36,493 35,671 Total loans 1,227,926 1,163,758 Less: Unearned income 1,784 1,969 Allowance for loan losses 48,320 38,851 Net loans $1,177,822 1,122,938
At December 31, 1995 and 1994, loans to executive officers, directors, and to associates of such persons aggregated $7,742,000 and $7,641,000, respectively. During 1995, new loans of $5,973,000 were made and repayments of loans totalled $5,872,000. In the opinion of management, such loans were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions. These loans do not involve more than normal risk of collectibility or present other unfavorable features. TrustCo lends primarily in the Capital District region of New York State and in the geographic territory surrounding its borders. Although the loan portfolio is diversified, a substantial portion of its debtors' ability to repay is dependent upon the economic conditions prevailing in New York State. The following table sets forth the information with regard to nonperforming loans:
(in thousands) At December 31, 1995 1994 1993 Loans in nonaccrual status $12,832 6,370 10,227 Loans contractually past due 90 days or more and still accruing interest 1,696 4,436 6,567 Restructured loans 1,130 910 -- Total nonperforming loans $15,658 11,716 16,794
Interest on nonaccrual and restructured loans of $1.3 million, $639 thousand, and $964 thousand would have been earned in accordance with the original contractual terms of the loans in 1995, 1994, and 1993, respectively. Approximately $607 thousand, $292 thousand and $288 thousand of interest on nonaccrual and restructured loans was collected and recognized as income in 1995, 1994, and 1993, respectively. There are no commitments to extend further credit on nonaccrual or restructured loans. Transactions in the allowance for loan losses account are summarized as follows:
(in thousands) For the years ended December 31, 1995 1994 1993 Balance at beginning of year $38,851 34,087 26,919 Provision for loan losses 12,698 8,056 11,576 Loans charged off (7,338) (4,824) (6,741) Recoveries on loans previously charged off 4,109 1,532 2,333 Balance at year end $48,320 38,851 34,087
Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 (Statement 114), "Accounting by Creditors for Impairment of a Loan." Statement 114 was amended by Statement of Financial Accounting Standards No. 118 (Statement 118), "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosure." These new accounting standards prescribe recognition criteria for loan impairment and measurement methods for impaired loans, and loans whose terms are modified in a troubled debt restructuring subsequent to the adoption of these new standards. A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement. These new standards are applicable principally to commercial and commercial real estate loans, however, certain provisions dealing with restructured loans also apply to the retail loan products. Once a loan is identified as impaired, the new accounting standards require measurement of the loan at the lower of fair value of the anticipated proceeds to be received or the recorded investment in the loan. The accounting standards provide certain guidelines as to how fair value is to be determined. As of January 1, 1995, the Company adopted the provisions of Statements 114 and 118 and has provided the required disclosures. In addition, Statement 114 substantially modified the definition of "in-substance foreclosure" loans. Consequently, certain loans identified at year end 1994 as being in-substance foreclosure loans, and classified as real estate owned, have been reclassified into the loan portfolio. At January 1, 1995, $9.2 million of loans previously included in real estate owned have been reclassified to the loan balance. At December 31, 1995, there were $9.4 million of commercial and commercial real estate loans that were in nonaccrual status and were classified as impaired loans. In addition, there were newly restructured retail loans totalling $600 thousand that as of December 31, 1995, are identified as impaired loans. None of the allowance for loan losses has been allocated to these impaired loans because of the significant charge offs that have been taken in prior years, and the fact that the collateral values support the loan balances. Cash payments received are normally applied to reduce the outstanding loan balance on the impaired loans (exclusive of cash payments received on restructured loans). During 1995 the average balance of impaired loans was $10.5 million, and there was approximately $405 thousand of interest income recorded on these loans in the accompanying consolidated statement of income. There were $7.1 million and $8.4 million of loans pledged for various purposes at December 31, 1995 and 1994, respectively. (6) Bank Premises and Equipment A summary of premises and equipment at December 31, 1995 and 1994 follows:
(in thousands) 1995 1994 Land $ 3,593 3,958 Buildings 25,075 22,155 Furniture, fixtures and equipment 15,611 15,466 Leasehold improvements 3,458 2,936 47,737 44,515 Accumulated depreciation and amortization (22,729) (20,638) Total $ 25,008 23,877
Depreciation and amortization expense approximated $3,640,000, $2,749,000, and $2,373,000 for the years 1995, 1994, and 1993, respectively. Occupancy expense of Bank premises included rental expense of $1,124,000, $1,053,000, and $1,388,000 for the years 1995, 1994, and 1993, respectively. (7) Short-term Borrowings Short-term borrowings, consisting primarily of securities sold under agreements to repurchase with maturities of generally less than ninety days and the Trustco Short Term Investment Fund, were as follows:
(dollars in thousands) 1995 1994 Amount outstanding at December 31 $56,654 12,713 Maximum amount outstanding at any month end 62,164 21,746 Average amount outstanding 38,090 18,129 Weighted average interest rate: For the year 4.66% 2.54 As of year end 4.83 3.36
(8) Income Taxes A summary of income tax expense/(benefit) included in the consolidated statements of income follows:
(in thousands) For the years ended December 31, 1995 1994 1993 Current tax expense: Federal $16,919 12,412 10,372 State 5,646 3,209 2,098 Total current tax expense 22,565 15,621 12,470 Deferred tax expense/(benefit) (9,811) (2,981) 46 Total income tax expense $12,754 12,640 12,516
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 is presented below.
(in thousands) December 31, 1995 Deductible Taxable temporary temporary differences differences Bond accounting $ 18 -- Benefits and deferred remuneration 2,433 -- Deferred loan fees, net 1,085 -- Difference in reporting the provision for loan losses, net 23,477 -- Other income or expense not utilized for tax purposes 4,386 -- Other items 1,098 -- Total 32,497 -- Valuation reserve (2,051) -- Net deferred tax asset at December 31, 1995 30,446 Net deferred tax asset at December 31, 1994 20,635 Deferred tax benefit for 1995 $(9,811)
(in thousands) December 31, 1994 Deductible Taxable temporary temporary differences differences Bond accounting $ 107 -- Benefits and deferred remuneration 2,326 -- Deferred loan fees, net 1,391 -- Difference in reporting the provision for loan losses, net 18,301 -- Other income or expense not utilized for tax purposes 2,174 -- Other items 1,042 -- Total 25,341 -- Valuation reserve (4,706) -- Net deferred tax asset at December 31, 1994 20,635 Net deferred tax asset at December 31, 1993 17,654 Deferred tax benefit for 1994 $(2,981)
Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. During 1995, the valuation reserve was reduced as a result of the resolution of several tax return audits and management's reassessment of the realization of certain deferred tax assets. The valuation allowance of $2,051,000 at December 31, 1995 is primarily reserved for federal and state tax law restrictions on the deductibility of certain temporary differences. The valuation allowance of $4,706,000 at December 31, 1994 was primarily reserved for federal and state tax law restrictions on the deductibility of certain temporary differences, as well as uncertainty regarding the ultimate realization of certain other deferred tax assets. Based primarily on the sufficiency of historical and future taxable income, management believes it is more likely than not that the remaining net deferred tax asset of $30,446,000 and $20,635,000 at December 31, 1995 and 1994, respectively, will be realized. In addition to the deferred tax items described in the preceding table, the Company also has a deferred tax liability of $8,693,000 at December 31, 1995, and a deferred tax asset of $29 thousand at December 31, 1994, relating to the net unrealized gains and losses, respectively, on securities available for sale. The effective tax rates differ from the statutory federal income tax rate. The reasons for these differences are as follows:
1995 1994 1993 Statutory federal income tax rate 35.0% 35.0 35.0 Increase/(decrease) in taxes resulting from: Tax exempt income (3.1) (1.9) (2.2) State income tax, net of federal tax benefit 9.6 4.9 4.0 Effect of (increase)/decrease in tax rate on deferred tax benefit -- 1.1 (1.4) Reduction in valuation reserve (6.9) (3.5) -- Other items (1.3) -- (0.8) Effective income tax rate 33.3% 35.6 34.6
(9) Employee Benefits The Company maintains a trusteed non-contributory pension plan covering employees that have completed one year of employment and 1,000 hours of service. The benefits are based on the sum of (a) a benefit equal to a prior service benefit plus the average of the employees' highest five consecutive years' compensation in the ten years preceding retirement multiplied by a percentage of service after a specified date plus (b) a benefit based upon career average compensation. The amounts contributed to the plan are determined annually on the basis of (a) the maximum amount that can be deducted for federal income tax purposes or (b) the amount certified by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Assets of the plan are invested primarily in common stock and fixed income common funds administered by the Bank. The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated statements of condition at December 31, 1995 and 1994: Actuarial Present Value of Benefit Obligations:
(in thousands) 1995 1994 Accumulated benefit obligation, including vested benefits of $12,304 and $12,768 in 1995 and 1994, respectively $(13,715) (12,946) Projected benefit obligation for service rendered to date (15,037) (14,093) Plan assets at fair value 22,621 18,575 Plan assets in excess of projected benefit obligation 7,584 4,482 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (5,110) (1,825) Unrecognized prior service cost (465) (511) Unrecognized net asset at transition being recognized over 5 remaining years (737) (884) Prepaid pension expense $ 1,272 1,262
Net Pension Benefit for 1995, 1994 and 1993 Included the Following Components:
(in thousands) 1995 1994 1993 Service cost -- benefits earned during the period $ 511 518 501 Interest cost on projected benefit obligation 920 874 811 Actual return on plan assets (5,080) (39) (1,064) Net amortization and deferral 3,639 (1,478) (500) Net periodic pension benefit $ (10) (125) (252)
The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations, and the weighted average expected long-term rate of return on pension assets used in determining net periodic pension costs/(benefits) were as follows:
1995 1994 1993 Weighted average discount rate 6.50% 6.75 6.75 Rate of increase in future compensation 6.00 5.00 5.00 Expected long-term rate of return on assets 6.75 6.50 6.50
The Company also has an unfunded defined contribution supplementary pension plan under which additional retirement benefits are accrued for eligible executive and senior officers. The expense recorded for this plan was $1,970,000, $1,780,000, and $489,000 in 1995, 1994, and 1993, respectively. The Company provides a profit-sharing plan for substantially all employees. The expense of this plan, which is based on management discretion as defined in the plan, amounted to $1,290,000 in 1995, $1,230,000 in 1994, and $1,470,000 in 1993. The Company also has an executive incentive plan. The expense of this plan is based on the Company's performance and estimated distributions to participants are accrued during the year and generally paid in the following year. The expense recorded for this plan was $1,655,000, $1,291,000, and $419,000 in 1995, 1994, and 1993, respectively. The following table presents a summary of activity with respect to the Company's Stock Option Plan:
Outstanding options Exercisable options Average Average option option Shares price Shares price Balance, January 1, 1993 860,371 $ 9.35 383,260 $ 8.00 New options awarded -- 1993 369,600 15.30 73,920 15.30 Exercised options -- 1993 58,283 7.39 58,283 7.39 Options became exercisable -- -- 137,741 8.00 Balance, December 31, 1993 1,171,688 10.29 536,638 9.68 New options awarded -- 1994 324,060 15.24 64,812 15.24 Cancelled options -- 1994 107,117 14.53 1,320 15.30 Exercised options -- 1994 85,921 10.09 85,921 10.09 Options became exercisable -- -- 193,249 9.68 Balance, December 31, 1994 1,302,710 12.12 707,458 10.68 New options awarded -- 1995 295,800 18.68 59,160 18.68 Exercised options -- 1995 111,914 7.95 111,914 7.95 Options became exercisable -- -- 242,417 12.71 Balance, December 31, 1995 1,486,596 $13.74 897,121 $12.10
Under the terms of the Directors' Stock Option Plan, 132,000 shares are reserved for director options. At December 31, 1995, 50,932 options remain issued and outstanding with an average exercise price of $17.31. In December 1990, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 106 (Statement 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions." Statement 106 requires a calculation of the present value of expected benefits to be paid to employees after their retirement and an allocation of those benefits to the periods that employees render service to earn the benefits. The Company permits retirees under age 65 to participate in the Company's medical plan by paying the same premium as the active employees. At age 65, the Bank provides a Medicare Supplemental Program to retirees. The Company adopted Statement 106 effective January 1, 1993, and has reported the cumulative effect of that change in the December 31, 1993 Consolidated Statement of Income. Accumulated postretirement benefit obligations at December 31, 1995 and 1994:
(in thousands) 1995 1994 Retirees $4,000 2,850 Fully eligible active plan participants 651 1,381 Other active plan participants 1,929 2,911 Accumulated postretirement benefit obligation $6,580 7,142 Plan assets, at fair value $8,058 6,358
Net periodic postretirement benefit costs for 1995, 1994, and 1993 includes the following components:
(in thousands) 1995 1994 1993 Service cost $ 325 362 357 Interest cost 445 462 389 Return on plan assets (248) (429) (279) Transition obligation -- -- 5,260 Net period postretirement benefit cost $ 522 395 5,727
The Company funded the plan in full through the use of a benefit trust during the first quarter of 1993. Assets of the plan are invested primarily in common stock and fixed income common funds administered by the Bank. The trust holding the plan assets is subject to federal income taxes at a 35.0 percent tax rate. The expected long-term rate of return on plan assets, after estimated income taxes, was 4.0%, 4.2%, and 3.3% for the years ended December 31, 1995, 1994, and 1993, respectively. For measurement purposes, an 8 percent annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 1995 and thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995, by approximately $1.1 million, and the aggregate of the service and the interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1995, by approximately $189 thousand. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 6.50 percent at December 31, 1995 and 6.75 percent at December 31, 1994. (10) Lease Commitments and Contingent Liabilities (a) Leases The Bank leases certain banking premises. These leases are accounted for as operating leases with minimum rental commitments in the amounts presented below. The majority of these leases contain options to renew.
(in thousands) 1996 $1,052 1997 971 1998 886 1999 845 2000 794 2001 and after 3,750 $8,298
(b) Litigation Existing litigation arising in the normal course of business is not expected to result in any material loss to the Company. (11) Off-Balance Sheet Financing Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a fee. Commitments sometimes expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Bank's normal credit policies, including obtaining collateral. The Bank's exposure to credit loss for loan commitments, including unused lines of credit, at December 31, 1995 and 1994 was $220.8 million and $217.3 million, respectively. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Bank's normal credit policies, including obtaining collateral. The Bank's exposure to credit loss for standby letters of credit at December 31, 1995 and 1994 was $19.0 million and $20.8 million, respectively. No losses are anticipated as a result of loan commitments or standby letters of credit. (12) Fair Value of Financial Instruments The fair values shown below represent management's estimates of values at which the various types of financial instruments could be exchanged in transactions between willing, unrelated parties. They do not necessarily represent amounts that would be received or paid in actual trades of specific financial instruments.
(in thousands) As of December 31, 1995 Carrying Fair value value Financial assets: Cash and cash equivalents $ 289,889 289,889 Securities available for sale 640,206 640,206 Loans 1,177,822 1,242,507 Accrued interest receivable 18,276 18,276 Financial liabilities: Demand deposits 111,743 111,743 Interest-bearing deposits 1,818,906 1,829,052 Borrowings 56,654 56,654 Accrued interest payable 2,797 2,797
(in thousands) As of December 31, 1994 Carrying Fair value value Financial assets: Cash and cash equivalents $ 315,479 315,479 Securities available for sale 117,458 117,458 Investment securities 347,858 334,455 Loans 1,122,938 1,104,401 Accrued interest receivable 14,690 14,690 Financial liabilities: Demand deposits 93,496 93,496 Interest-bearing deposits 1,696,335 1,696,335 Borrowings 16,263 16,263 Accrued interest payable 1,843 1,843
The specific estimation methods and assumptions used can have a substantial impact on the resulting fair values of financial instruments. Following is a brief summary of the significant methods and assumptions used in the above table: Cash and Cash Equivalents The carrying values of these financial instruments approximates fair values. Securities Fair values for all securities portfolios are based upon quoted market prices, where available. The carrying value of certain local, unrated municipal obligations was used as an approximation of fair value. Loans The fair values of all loans are estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Deposit Liabilities The fair values disclosed for noninterest-bearing deposits, NOW accounts, savings accounts and money market accounts are, by definition, equal to the amount payable on demand at the balance sheet date. The carrying value of all variable rate certificates of deposit is assumed to approximate fair value. The fair value of fixed rate certificates of deposit is estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered on certificates of similar size and remaining maturity. For 1995, the fair value of fixed rate certificates of deposit is less than the carrying value because the average rate paid by the Company on the deposits at December 31, 1995, is greater than the market rates at that date. At December 31, 1994, the fair value of fixed rate certificates of deposit is assumed to equal carrying value due to the interest rate environment at year end 1994. Borrowings and Other Financial Instruments The fair value of all borrowings and other financial instruments is assumed to be the carrying value. Financial Instruments with Off-Balance Sheet Risk The Company is a party to financial instruments with off-balance sheet risk. Such financial instruments consist of commitments to extend financing and letters of credit. If the commitments are exercised by the prospective borrowers, these financial instruments will become interest-earning assets of the Company. If the commitments expire, the Company retains any fees paid by the prospective borrower. The fair value of commitments is estimated based upon fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the present credit worthiness of the borrower. For fixed rate commitments, the fair value estimation takes into consideration an interest rate risk factor. The fair value of these off-balance sheet items at December 31, 1995 and 1994 approximates the recorded amounts of the related fees, which are considered to be immaterial. The Company has no derivative investment products at year end 1995 and 1994, nor has the Company ever invested in such investment vehicles. Therefore, the disclosures as required by Statement of Financial Accounting Standards No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," are not presented except as it relates to fair value disclosures in this footnote. (13) Parent Company Only The following statements pertain to TrustCo Bank Corp NY (Parent Company): Statements of Income
(in thousands) Years Ended December 31, 1995 1994 1993 Income: Dividends and interest from subsidiaries $28,416 14,820 11,061 Gain on sale of securities 92 133 374 Income from other investments 66 66 72 Total income 28,574 15,019 11,507 Expense: Interest on long-term debt -- -- 343 Operating supplies 126 129 129 Professional services 200 145 128 Miscellaneous expense 70 48 33 Total expense 396 322 633 Income before income taxes and undistributed net income of subsidiaries 28,178 14,697 10,874 Income tax expense/(benefit) (32) 1 52 Income before equity in undistributed net income of subsidiaries 28,210 14,696 10,822 (Distributions in excess of)/equity in undistributed net income of subsidiaries (2,683) 8,192 9,503 Net income $25,527 22,888 20,325
Statements of Condition
(in thousands) December 31, 1995 1994 Assets: Cash in subsidiary bank $ 7,187 8,229 Notes and receivables from subsidiaries 3,617 -- Investments in subsidiaries 141,526 132,300 Securities available for sale 12,601 2,300 Other assets 92 126 Bank premises and equipment -- 389 Total assets $165,023 143,344 Liabilities and shareholders' equity: Accrued expenses and other liabilities $ 4,924 4,061 Total liabilities 4,924 4,061 Shareholders' equity 160,099 139,283 Total liabilities and shareholders' equity $165,023 143,344
Statements of Cash Flows
(in thousands) For the Years Ended December 31, 1995 1994 1993 Increase/(decrease) in cash and cash equivalents: Cash flows from operating activities: Net income $ 25,527 22,888 20,325 Adjustments to reconcile net income to net cash provided by operating activities: Distributions in excess of/(undistributed income) of subsidiaries 2,683 (8,192) (9,503) Decrease in receivable from subsidiary -- -- 54 Gain on sales of securities (92) (133) (374) Decrease in taxes and other assets 78 1 53 Increase/(decrease) in accrued expenses 31 34 (120) Total adjustments 2,700 (8,290) (9,890) Net cash provided by operating activities 28,227 14,598 10,435 Cash flows from investing activities: Proceeds from sales or maturities of investment securities -- -- 1,877 Proceeds from sale of securities available for sale 1,285 1,603 -- Purchase of trading securities -- -- (1,940) Purchase of securities (10,651) (1,668) (8) Net decrease in short-term loaned funds to subsidiary -- -- 2,500 Increase in investment in and notes and receivables from subsidiaries (3,617) -- (1) Net cash provided by/(used in) investing activities (12,983) (65) 2,428 Cash flows from financing activities: Repayment of long-term debt -- -- (5,000) Proceeds from issuance of common stock 893 866 468 Dividends paid (16,926) (13,595) (10,888) Payments to acquire treasury stock (253) -- -- Proceeds from sale of treasury stock -- -- 218 Net cash used in financing activities (16,286) (12,729) (15,202) Net increase/(decrease) in cash and cash equivalents (1,042) 1,804 (2,339) Cash and cash equivalents at beginning of year 8,229 6,425 8,764 Cash and cash equivalents at end of year $ 7,187 8,229 6,425 Supplemental disclosure of cash flow information: Increase in dividends payable $ 829 715 672 Reclassification of trading securities to securities available for sale upon adoption of Statement 115 -- 2,106 -- Change in unrealized (gain)/loss on available for sale securities -- gross (843) 42 -- Reclassification of fixed assets to other assets 389 -- -- Change in deferred tax effect on unrealized gain/(loss) on securities available for sale 348 (18) --
TrustCo Bank Corp NY Officers and Board of Directors OFFICERS PRESIDENT AND CHIEF EXECUTIVE OFFICER Robert A. McCormick VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Robert T. Cushing VICE PRESIDENT Nancy A. McNamara VICE PRESIDENT AND ASSISTANT SECRETARY Ralph A. Pidgeon SECRETARY William F. Terry BOARD OF DIRECTORS Barton A. Andreoli President Towne Construction and Paving Corp. Lionel O. Barthold Chairman, Power Technologies, Inc. M. Norman Brickman President, D. Brickman, Inc. Charles W. Carl, Jr. Retired, Former President, The Carl Company Robert A. McCormick President and Chief Executive Officer Trustco Bank Nancy A. McNamara Senior Vice President Trustco Bank John S. Morris, Ph. D. President Emeritus, Union College and Former Chancellor, Union University James H. Murphy, D.D.S. Orthodontist Richard J. Murray, Jr. President, R.J. Murray Co., Inc Kenneth C. Petersen President Schenectady International, Inc. William D. Powers Chairman New York Republican State Committee William J. Purdy President Welbourne & Purdy Realty, Inc. William F. Terry Senior Vice President and Secretary Trustco Bank Philip J. Thompson Retired, Former Vice President and Director New York Telephone Directors of TrustCo Bank Corp NY are also Directors of Trustco Bank HONORARY DIRECTORS Dr. Caryl P. Haskins Bernard J. King H. Gladstone McKeon William H. Milton, III Daniel J. Rourke, M.D. Anthony M. Salerno Edwin O. Salisbury Harry E. Whittingham, Jr. Trustco Bank Officers PRESIDENT AND CHIEF EXECUTIVE OFFICER Robert A. McCormick SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Robert T. Cushing SENIOR VICE PRESIDENT Nancy A. McNamara SENIOR VICE PRESIDENT Ralph A. Pidgeon SENIOR VICE PRESIDENT AND SECRETARY William F. Terry AUDITOR John C. Fay ACCOUNTING/FINANCE, DATA PROCESSING, GENERAL SERVICES, MANAGEMENT INFORMATION SYSTEMS Senior Vice President and Chief Financial Officer Robert T. Cushing ACCOUNTING/FINANCE Vice Presidents Linda C. Christensen Jeffrey S. Farbaniec Management Information Officer Lynn D. Hackler DATA PROCESSING Administrative Vice President William H. Milton Senior Information Services Officer Daneille M. Eddy LEGAL COUNSEL, LOAN DIVISION, MARKETING/ COMMUNITY RELATIONS Senior Vice President Nancy A. McNamara LEGAL COUNSEL Administrative Vice President Henry C. Collins Vice President George W. Wickswat LOAN DIVISION COMMERCIAL LOANS Vice President Robert J. McCormick Senior Commercial Loan Officer Elinore J. Vine Commercial Loan Officer Eric W. Schreck MORTGAGE LOANS Vice President Donald J. Csaposs MARKETING/COMMUNITY RELATIONS Vice President Madeline S. Busch BRANCHES, INSTALLMENT LOANS/CREDIT CARDS, RETIREMENT/GOVERNMENT ACCOUNTS Senior Vice President Ralph A. Pidgeon BRANCH OFFICERS Richard E. Bailey Thomas H. Lauster INSTALLMENT LOANS/ CREDIT CARDS Senior Installment Loan Officer Thomas M. Poitras BANK OPERATIONS Senior Vice President and Secretary William F. Terry Administrative Vice President James D. McLoughlin Vice President Ann M. Noble HUMAN RESOURCES Senior Personnel Officer Cheri J. Parvis TRUST DEPARTMENT Administrative Vice President Carroll E. Winch Vice Presidents Ann Marie Franke James Niland Matthew G. Waschull Trust Officers John P. Fulgan Richard W. Provost J. Jeffrey Underhill Investment Officers William M. McCartan Robert Scribner Branch Locations Altamont Ave. Office 1400 Altamont Ave. Schenectady Telephone: 356-1317 Altamont Ave. West Office 1900 Altamont Ave. Rotterdam Telephone: 355-1900 Bay Road Office 292 Bay Road Queensbury Telephone: 792-2691 Brandywine Office State St. at Brandywine Ave. Schenectady Telephone: 346-4295 Central Avenue Office 163 Central Ave. Albany Telephone: 426-7291 Clifton Country Road Office 7 Clifton Country Road Clifton Park Telephone: 371-5002 Clifton Park Office 1018 Route 146 Clifton Park Telephone: 371-8451 Colonie Office 1892 Central Ave. Colonie Plaza, Colonie Telephone: 456-0041 Delmar Office 167 Delaware Ave. Delmar Telephone: 439-9941 East Greenbush Office 501 Columbia Turnpike Rensselaer Telephone: 479-7233 Exit 8/Crescent Rd. Office CVS Plaza Clifton Park Telephone: 383-0113 Glens Falls Office 3 Warren Street Glens Falls Telephone: 798-8131 Greenwich Office 131 Main St. Greenwich Telephone: 692-2233 Guilderland Office 3900 Carman Road Schenectady Telephone: 355-4890 Halfmoon Office Country Dollar Plaza Halfmoon Telephone: 371-0593 Hoosick Falls Office 47 Main St. Hoosick Falls Telephone: 686-5352 Hudson Office 507 Warren St. Hudson Telephone: 828-9434 Hudson Falls Office 3376 Burgoyne Avenue Hudson Falls Telephone: 747-0886 Latham Office 1 Johnson Road Latham Telephone: 785-0761 Loudon Plaza Office 372 Northern Blvd. Albany Telephone: 462-6668 Madison Avenue Office 1084 Madison Ave. Albany Telephone: 489-4711 Main Office 320 State St. Schenectady Telephone: 377-3311 Malta Mall Office 43 Round Lake Road Ballston Lake Telephone: 899-1558 Mayfair Office Saratoga Road at Mayfair Glenville Telephone: 399-9121 Mechanicville Office 9 Price Chopper Plaza Mechanicville Telephone: 664-1059 Mont Pleasant Office Crane St. at Main Ave. Schenectady Telephone: 346-1267 New Scotland Office 301 New Scotland Ave. Albany Telephone: 438-7838 Newton Plaza Office 588 New Loudon Road Latham Telephone: 786-3687 Niskayuna-Woodlawn Office 3461 State St. Schenectady Telephone: 377-2264 Plaza Seven Office 1208 Troy-Schenectady Road Latham Telephone: 785-4744 Queensbury Office 118 Quaker Road Suite 9, Queensbury Telephone: 798-7226 Rotterdam Office Curry Road Shopping Ctr. Rotterdam Telephone: 355-8330 Rotterdam Square Office 93 W. Campbell Road Rotterdam Telephone: 377-2393 Route 9 Office -- Latham 754 New Loudon Rd. Latham Telephone: 786-8816 Sheridan Plaza Office 1350 Gerling St. Schenectady Telephone: 377-8517 Shoppers' World Office Old Rte. 146 and Plank Rd. Clifton Park Telephone: 383-6851 State Farm Road Office 2050 Western Ave. Guilderland Telephone: 452-6913 State Street Office 112 State St. Albany Telephone: 436-9043 Stuyvesant Plaza Office Western Ave. at Fuller Road Albany Telephone: 489-2616 Tanners Main Office 345 Main Street Catskill Telephone: 943-2500 Tanners West Side Office 238 West Bridge St. Catskill Telephone: 943-5090 Troy Office 5th Ave. and State St. Troy Telephone: 274-5420 Union Street East Office 1700 Union St. Schenectady Telephone: 382-7511 Upper New Scotland Office 583 New Scotland Ave. Albany Telephone: 438-6611 Upper Union Street Office 1620 Union St. Schenectady Telephone: 374-4056 Wilton Mall Office Route 50 Saratoga Springs Telephone: 583-1716 Wolf Road Office 34 Wolf Road Albany Telephone: 458-7761 General Information ANNUAL MEETING Monday, May 20, 1996 10:00 AM TrustCo Bank Corp NY 192 Erie Boulevard Schenectady, NY 12305 CORPORATE HEADQUARTERS 320 State Street Schenectady, New York 12305 (518-377-3311) DIVIDEND REINVESTMENT PLAN A Dividend Reinvestment Plan is available to shareholders of TrustCo Bank Corp NY. It provides for the reinvestment of cash dividends and optional cash payments to purchase additional shares of TrustCo stock. The Plan is free of administrative charges, and provides a convenient method of acquiring additional shares. Trustco Bank, our wholly owned bank subsidiary, acts as administrator for this service, and has a designated agent for shareholders in these transactions. Shareholders who want additional information may contact the TrustCo Shareholder Services Department (518-381-3601). EQUAL OPPORTUNITY AT TRUSTCO Trustco Bank is an Affirmative Action Equal Opportunity Employer. FORM 10-K TrustCo Bank Corp NY will provide without charge a copy of its Form 10-K upon written request. Requests and related inquiries should be directed to William F. Terry, Secretary, TrustCo Bank Corp NY, P.O. Box 1082, Schenectady, New York 12301-1082. NASDAQ SYMBOL: TRST The Corporation's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol TRST. SUBSIDIARIES: Trustco Bank, National Association Schenectady, New York Member FDIC ORE Subsidiary Corp. Schenectady, New York TRANSFER AGENT Trustco Bank Securities Department P.O. Box 380 Schenectady, New York 12301-0380 Exhibit 21 LIST OF SUBSIDIARIES OF TRUSTCO Trustco Bank, National Association...... .Nationally chartered banking association ORE Subsidiary Corp..................... New York corporation Exhibit 23 KPMG Peat Marwick LLP 74 North Pearl Street Albany, NY 12207 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS _______________________________________________________ The Board of Directors TrustCo Bank Corp NY: We consent to incorporation by reference in the Registration Statements, Form S-8 (No. 33-43153) filed on October 3, 1991, Form S-8 (No. 33-67176) filed on August 6, 1993, Form S-8 (No. 33-43153) filed on March 21, 1995, Form S-8 (No. 33-60409) filed on June 20, 1995, Form S-3 (No. 33-46044) filed on September 20, 1995 of TrustCo Bank Corp NY and subsidiaries of our report dated January 26, 1996, relating to the consolidated statements of condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 Annual Report on Form 10-K of TrustCo Bank Corp NY. Our report refers to the adoption of the provisions of Statement of Financial Accounting Standards No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." /s/ KPMG Peat Marwick LLP Albany, New York March 26, 1996 Exhibit 24 POWER OF ATTORNEY The undersigned persons do hereby appoint William F. Terry or Robert T. Cushing as a true and lawful Attorney In Fact for the sole purpose of affixing their signatures to the 1995 Annual Report (Form 10-K) of TrustCo Bank Corp NY to the Securities and Exchange Commission. /s/Barton A. Andreoli /s/Lionel O. Barthold __________________________ _____________________ Barton A. Andreoli Lionel O. Barthold /s/M. Norman Brickman /s/Charles W. Carl, Jr. __________________________ _____________________ M. Norman Brickman Charles W. Carl, Jr. /s/Robert A. McCormick /s/Nancy A. McNamara __________________________ _____________________ Robert A. McCormick Nancy A. McNamara /s/Dr. John S. Morris /s/Dr. James H. Murphy __________________________ _____________________ Dr. John S. Morris Dr. James H. Murphy /s/Richard J. Murray, Jr. /s/Kenneth C. Petersen __________________________ _____________________ Richard J. Murray, Jr. Kenneth C. Petersen /s/ William D. Powers /s/William J. Purdy __________________________ _____________________ William D. Powers William J. Purdy /s/William F. Terry /s/Philip J. Thompson __________________________ _____________________ William F. Terry Philip J. Thompson Sworn to before me this 19th day of March 1996. By/s/Joan Clark - ------------------------- Notary Public Joan Clark Notary Public, State of New York Qualified in Albany County No. 01CL4822282 Commission Expires Nov. 30, 1996 Exhibit 99 KPMG Peat Marwick LLP 74 North Pearl Street Albany, NY 12207 Independent Auditors Report ------------------------------------ The Board of Directors and Shareholders of TrustCo Bank Corp NY: We have audited the accompanying consolidated statements of condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TrustCo Bank Corp NY and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in note 5 to the consolidated financial statements, effective January 1, 1995, the Company adopted the provisions of the Financial Accounting Standards Board s Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" which prescribe recognition criteria for loan impairment and measurement methods for impaired loans. As discussed in note 4 to the consolidated financial statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board s Statement of Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities which changed its method of accounting for certain investments in debt and equity securities. As discussed in note 9 to the consolidated financial statements, the Company also adopted the provisions of the Financial Accounting Standards Board s Statement of Financial Accounting Standards No. 106, Employers Accounting for Postretirement Benefits Other than Pensions in 1993 which changed its method of accounting for postretirement benefits other than pensions. /s/KPMG Peat Marwick LLP Albany, New York January 26, 1996 EX-27 2 ARTICLE 9 FDS FOR 10-K
9 12-MOS DEC-31-1995 DEC-31-1995 50,889 1,818,906 239,000 0 640,206 0 0 1,226,142 48,320 2,176,185 1,930,649 56,654 28,783 0 18,135 0 0 141,964 2,176,185 107,060 54,492 0 161,552 78,355 80,200 81,352 12,698 243 44,440 38,281 38,281 0 0 25,527 1.42 1.42 418 12,832 1,696 1,130 0 38,851 7,338 4,109 48,320 0 0 48,320
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