-----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, M27iAqHw2T9lqWYCT0elTYFEN2xacqJGgtBaGmOJHOcqVFZm6DDqThS0zi761Di6 beiPoiedlk9Yqac1qtRu6Q== 0001005477-01-500716.txt : 20010816 0001005477-01-500716.hdr.sgml : 20010816 ACCESSION NUMBER: 0001005477-01-500716 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010815 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10592 FILM NUMBER: 1716097 BUSINESS ADDRESS: STREET 1: PO BOX 380 CITY: SCHENECTADY STATE: NY ZIP: 12301-0380 BUSINESS PHONE: 5183773311 MAIL ADDRESS: STREET 1: 9112 ERIE BLVD CITY: SCHENECTADY STATE: NY ZIP: 12305-1808 10-Q 1 d01-34294.txt FORM 10-Q THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON AUGUST 15, 2001 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended Commission File Number 0-10592 June 30, 2001 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.) 5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302 (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: (Title of class) Common 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Number of Shares Outstanding Class of Common Stock as of July 31, 2001 - --------------------- ---------------------------- $1 Par Value 61,866,878
TrustCo Bank Corp NY INDEX Part I. FINANCIAL INFORMATION PAGE NO. _______________________________________________________________________________ Item 1. Interim Financial Statements (Unaudited): Consolidated Statements of Income for the Three Months and Six Months Ended 1 June 30, 2001 and 2000 Consolidated Statements of Financial Condition as of June 30, 2001 and December 31, 2000 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 3 - 4 Notes to Consolidated Interim Financial Statements 5 - 8 Independent Accountants' Review Report 10 Item 2. Management's Discussion and Analysis 11 - 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Part II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities and use of Proceeds - None Item 3. Defaults Upon Senior Securities - None Item 4. Submissions of Matters to Vote of Security Holders - Annual Meeting 34 Item 5. Other Information - None i Item 6.Exhibits and Reports on Form 8-K (a) Exhibits Reg S-K (Item 601) Exhibit No. Description Page No. ________________________________________________________________________________ 10(a) Amendment No. 6 to Employment agreement between Trustco Bank, National Association and TrustCo Bank Corp NY and Robert A. McCormick 26 10(b) Amendment No. 2 to Second Restatement of Trustco Bank Supplemental Retirement Plan 28 10(c) Amendment No. 3 to Restatement of Trustco Bank Executive Officer Incentive Plan 30 10(d) Amendment No. 4 to Restated Agreement for Supplemental Retirement Benefits for Robert A. McCormick 32 22 Submission of Matters to Vote of Security Holders - Annual Meeting 34 (b) Reports on Form 8-K Filing of Form 8-K on May 16, 2001, regarding May 15, 2001, letter to shareholders which contained discussion of May 14, 2001, annual meeting of shareholders, and a press release dated May 15, 2001, declaring a cash dividend of $0.15 per share payable on July 2, 2001, to shareholders of record June 8, 2001, is incorporated herein by reference. Filing of Form 8-K on July 17, 2001, regarding two press releases dated July 17, 2001, detailing second quarter financial results, is incorporated herein by reference. ii TRUSTCO BANK CORP NY Consolidated Statements of Income (dollars in thousands, except per share data) (Unaudited)
3 Months Ended 6 Months Ended June 30 June 30 --------------------- ------------------- 2001 2000 2001 2000 -------- ------ ------ ------ Interest and dividend income: Interest and fees on loans ................. $ 29,747 27,779 59,789 55,211 Interest on U. S. Treasuries and agencies .. 2,706 3,947 5,900 7,871 Interest on states and political subdivisions .............................. 2,664 1,966 5,032 3,836 Interest on mortgage-backed securities ..... 2,884 3,850 6,478 7,603 Interest and dividends on other securities . 1,205 1,610 2,063 3,288 Interest on federal funds sold ............. 3,251 3,880 7,024 7,467 -------- ------ ------ ------ Total interest income ................... 42,457 43,032 86,286 85,276 -------- ------ ------ ------ Interest expense: Interest on deposits: Interest-bearing checking ............... 742 728 1,459 1,443 Savings ................................. 4,092 4,268 8,032 8,562 Money market deposit accounts ........... 418 380 817 781 Time deposits ........................... 11,606 10,814 24,094 21,459 Interest on short-term borrowings .......... 1,893 2,035 4,265 3,781 Interest on long-term debt ................. 11 -- 24 -- -------- ------ ------ ------ Total interest expense ................... 18,762 18,225 38,691 36,026 -------- ------ ------ ------ Net interest income ...................... 23,695 24,807 47,595 49,250 Provision for loan losses ................... 1,120 800 2,615 1,650 -------- ------ ------ ------ Net interest income after provision for loan losses ......................... 22,575 24,007 44,980 47,600 -------- ------ ------ ------ Noninterest income: Trust department income .................... 1,967 2,184 4,030 4,270 Fees for other services to customers ....... 2,655 2,303 4,963 4,362 Net gain / (loss) on securities transactions 2,067 (2,320) 3,209 (3,369) Other ...................................... 792 888 1,605 1,594 -------- ------ ------ ------ Total noninterest income .................. 7,481 3,055 13,807 6,857 -------- ------ ------ ------ Noninterest expenses: Salaries and employee benefits ............. 6,600 5,736 13,223 12,108 Net occupancy expense ...................... 1,471 1,187 2,800 2,372 Equipment expense .......................... 972 1,078 2,320 2,293 FDIC insurance expense ..................... 94 102 188 206 Professional services ...................... 726 897 1,317 1,562 Other real estate expenses / (income) ...... (28) (258) (188) (302) Other ...................................... 3,105 2,690 5,541 5,115 -------- ------ ------ ------ Total noninterest expenses ................ 12,940 11,432 25,201 23,354 -------- ------ ------ ------ Income before taxes ...................... 17,116 15,630 33,586 31,103 Applicable income taxes ..................... 5,444 5,133 10,616 10,336 -------- ------ ------ ------ Net income .............................. $ 11,672 10,497 22,970 20,767 ======== ====== ====== ====== Net income per Common Share: - Basic ................................. $ 0.189 0.171 0.372 0.338 ======== ====== ====== ====== - Diluted ............................... $ 0.182 0.166 0.359 0.327 ======== ====== ====== ======
Per share data is adjusted for the effect of the 15% stock split declared August, 2000. See accompanying notes to consolidated interim financial statements. 1 TRUSTCO BANK CORP NY Consolidated Statements of Financial Condition (dollars in thousands, except share data)
6/30/01 12/31/00 ----------- ---------- ASSETS: (Unaudited) Cash and due from banks .................................. $ 44,370 45,956 Federal funds sold ....................................... 277,292 299,490 ----------- ---------- Total cash and cash equivalents ........................ 321,662 345,446 Securities available for sale: U. S. Treasuries and agencies 147,857 ................... 189,562 States and political subdivisions ....................... 223,924 173,195 Mortgage-backed securities .............................. 109,740 188,602 Other ................................................... 122,936 53,925 ----------- ---------- Total securities available for sale .................... 604,457 605,284 ----------- ---------- Loans: Commercial .............................................. 202,444 199,728 Residential mortgage loans .............................. 1,164,153 1,119,437 Home equity line of credit .............................. 124,998 130,739 Installment loans ....................................... 22,543 26,134 ----------- ---------- Total loans ............................................ 1,514,138 1,476,038 ----------- ---------- Less: Allowance for loan losses ............................... 56,944 56,298 Unearned income ......................................... 913 990 ----------- ---------- Net loans ............................................... 1,456,281 1,418,750 Bank premises and equipment .............................. 19,135 17,416 Real estate owned ........................................ 1,659 1,911 Other assets ............................................. 68,607 67,391 ----------- ---------- Total assets .......................................... $ 2,471,801 2,456,198 =========== ========== LIABILITIES: Deposits: Demand .................................................. $ 188,223 191,260 Interest-bearing checking ............................... 276,909 277,543 Savings accounts ........................................ 614,371 588,595 Money market deposit accounts ........................... 62,558 56,917 Certificates of deposit (in denominations of $100,000 or more) ...................................... 131,209 123,211 Time deposits ........................................... 737,425 773,465 ----------- ---------- Total deposits ......................................... 2,010,695 2,010,991 Short-term borrowings .................................... 204,522 192,898 Long-term debt ........................................... 770 911 Accrued expenses and other liabilities ................... 54,780 55,555 ----------- ---------- Total liabilities ...................................... 2,270,767 2,260,355 ----------- ---------- SHAREHOLDERS' EQUITY: Capital stock par value $1; 100,000,000 shares authorized, and 65,798,563 and 65,172,317 shares issued June 30, 2001 and December 31, 2000, respectively .................... 65,799 65,172 Surplus .................................................. 79,838 78,407 Undivided profits ........................................ 61,395 56,923 Accumulated other comprehensive income: Net unrealized gain on securities available for sale ... 22,777 20,539 Treasury stock at cost - 4,093,038 and 3,801,267 shares at June 30, 2001 and December 31, 2000, respectively ...... (28,775) (25,198) ----------- ---------- Total shareholders' equity ............................. 201,034 195,843 ----------- ---------- Total liabilities and shareholders' equity ............. $ 2,471,801 2,456,198 =========== ==========
See accompanying notes to consolidated interim financial statements. 2 TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS SIX MONTHS ENDED June 30, 2001 2000 --------- -------- Cash flows from operating activities: Net income ............................................. $ 22,970 20,767 --------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................ 1,070 976 Gain on sales of fixed assets ........................ -- (52) Provision for loan losses ............................ 2,615 1,650 Loss on sale of securities available for sale ........ 355 3,817 Gain on sale of securities available for sale ........ (3,540) (361) Provision for deferred tax expense/(benefit) ......... (1,297) 98 Decrease in taxes receivable ......................... 3,844 1,218 Increase in interest receivable ...................... (34) (729) Increase/(decrease) in interest payable .............. (605) 168 Increase in other assets ............................. (5,446) (5,521) Decrease in accrued expenses ......................... (228) (407) --------- -------- Total adjustments .................................. (3,266) 857 --------- -------- Net cash provided by operating activities .............. 19,704 21,624 --------- -------- Cash flows from investing activities: Proceeds from sales and calls of securities available for sale .................................. 188,108 93,739 Purchase of securities available for sale ............ (182,016) (148,643) Proceeds from maturities and calls of securities available for sale .................... 1,771 40,534 Net increase in loans ................................ (41,137) (27,821) Proceeds from dispositions of real estate owned ...... 1,176 1,302 Proceeds from sales of fixed assets .................. 61 120 Capital expenditures ................................. (2,678) (939) --------- -------- Net cash used in investing activities .............. (34,715) (41,708) --------- -------- Cash flows from financing activities: Net decrease in deposits ............................. (296) (15,765) Increase in short-term borrowings .................... 11,624 9,327 Repayment of long-term debt .......................... (141) -- Proceeds from exercise of stock options .............. 2,057 1,017 Proceeds from sale of treasury stock ................. 3,349 3,045 Purchase of treasury stock ........................... (6,926) (4,781) Dividends paid ....................................... (18,440) (16,044) --------- -------- Net cash used in financing activities .............. (8,773) (23,201) --------- -------- Net decrease in cash and cash equivalents .............. (23,784) (43,285) Cash and cash equivalents at beginning of period ....... 345,446 330,512 --------- -------- Cash and cash equivalents at end of period ............. $ 321,662 287,227 ========= ========
See accompanying notes to consolidated interim financial statements. (Continued) 3 TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows Continued (Unaudited) (dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: SIX MONTHS ENDED June 30, 2001 2000 -------- ------- Interest paid ..................................... $ 39,296 35,858 Income taxes paid ................................. 8,114 9,020 Transfer of loans to real estate owned ............ 991 480 Increase/(decrease) in dividends payable .......... 58 (14) Change in unrealized gain on securities available for sale-gross of deferred taxes ....... (3,851) (9,734) Change in deferred tax effect on unrealized gain on securities available for sale ................. 1,612 3,976
See accompanying notes to consolidated interim financial statements. 4 TRUSTCO BANK CORP NY NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) 1. FINANCIAL STATEMENT PRESENTATION In the opinion of the management of TrustCo Bank Corp NY (the Company), the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments necessary to present fairly the financial position as of June 30, 2001, the results of operations for the three months and six months ended June 30, 2001 and 2000, and the cash flows for the six months ended June 30, 2001 and 2000. The accompanying Consolidated Interim Financial Statements should be read in conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial Statements, including notes thereto, which are included in TrustCo Bank Corp NY's 2000 Annual Report to Shareholders on Form 10-K. 2. EARNINGS PER SHARE A reconciliation of the component parts of earnings per share for the three month and six month periods ended June 30, 2001 and 2000 follows:
Weighted Outstanding (In thousands, Net Average Per Share except per share data) Income Shares Amounts - ----------------------------------------------------------------------------------- For the quarter ended June 30, 2001: Basic EPS: Net income available to common shareholders ............... $11,672 61,910 $0.189 Effect of Dilutive Securities: Stock options ..................... -- 2,086 -- ------- ------ ------ Diluted EPS .......................... $11,672 63,996 $0.182 ======= ====== ====== For six months ended June 30, 2001: Basic EPS: Net income available to common shareholders ............... $22,970 61,752 $0.372 Effect of Dilutive Securities: Stock options ..................... -- 2,187 -- ------- ------ ------ Diluted EPS .......................... $22,970 63,939 $0.359 ======= ====== ======
There were no antidilutive stock options as of June 30, 2001. 5
Weighted Outstanding (In thousands, Net Average Per Share except per share data) Income Shares Amounts - ----------------------------------------------------------------------------------- For the quarter ended June 30, 2000: Basic EPS: Net income available to common shareholders .............. $10,497 61,487 $0.171 Effect of Dilutive Securities: Stock options .................... -- 1,931 -- ------- ------ ------ Diluted EPS ......................... $10,497 63,418 $0.166 ======= ====== ====== For six months ended June 30, 2000: Basic EPS: Net income available to common shareholders .............. $20,767 61,474 $0.338 Effect of Dilutive Securities: Stock options .................... -- 1,969 -- ------- ------ ------ Diluted EPS ......................... $20,767 63,443 $0.327 ======= ====== ======
Per share data have been adjusted for the 15 per cent stock split declared in August 2000. 6 3. COMPREHENSIVE INCOME Comprehensive income for the three month periods ended June 30, 2001 and 2000 was $12,583,000 and $13,529,000 respectively, and $25,208,000 and $26,525,000 for the six month periods ended June 30, 2001 and 2000, respectively. The following summarizes the components of other comprehensive income:
(dollars in thousands) Three months ended June 30 -------------------------- 2001 2000 Unrealized holding gains arising during period, net of tax (pre-tax gain of $3,658 for 2001 and pre-tax gain of $2,684 for 2000) $2,134 1,586 Reclassification adjustment for net gain/(loss) realized in net income during the period, net of tax (pre-tax gain of $2,067 for 2001 and pre-tax loss of $2,445 for 2000) .................... 1,223 (1,446) ------ ----- Other comprehensive income ................................... $ 911 3,032 ====== =====
(dollars in thousands) Six months ended June 30 ------------------------ 2001 2000 ------ ----- Unrealized holding gains arising during period, net of tax (pre-tax gain of $7,036 for 2001 and pre-tax gain of $6,278 for 2000) $4,122 3,714 Reclassification adjustment for net gain/(loss) realized in net income during period, net of tax (pre-tax gain of $3,185 for 2001 and pre-tax loss of $3,456 for 2000) .......................... 1,884 (2,044) ------ ----- Other comprehensive income .................................... $2,238 5,758 ====== =====
7 4. IMPACT OF CHANGES IN ACCOUNTING STANDARDS The Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), effective January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of condition and measure those instruments at fair value. Changes in the fair value of the derivative financial instruments are reported in either earnings or comprehensive income, depending on the use of the derivative and whether or not it qualifies for hedge accounting. Special hedge accounting treatment is permitted only if specific criteria are met, including a requirement that the hedging relationship be highly effective both at inception and on an ongoing basis. Accounting for hedges varies based on the type of hedge - fair value or cash flow. Results of effective hedges are recognized in current earnings for fair value hedges and in other comprehensive income for cash flow hedges. Ineffective portions of hedges are recognized immediately in earnings and are not deferred. The adoption of Statement 133 as of January 1, 2001 did not have a material effect on the Company's consolidated financial statements, as the Company had no derivitive instruments or embedded derivitives at adoption or at any time during the first quarter of 2001. If the Company were to invest in derivative investments, there may be increased volatility in net income and shareholders' equity on an ongoing basis as a result of accounting for derivative instruments in accordance with Statement 133. In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (Statement 140). Statement 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Under Statement 140, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. Statement 140 also provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Statement 140 is effective for certain disclosures in the fiscal year ended December 31, 2000, and for certain transactions occurring after March 31, 2001. The adoption of Statement 140 did not have, and is not expected to have, a material effect on the Company's consolidated financial statements. In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business 8 combinations completed after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. As of June 30, 2001 the Company had $1.1 million of unamortized goodwill which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $172 thousand for the six months ended June 30, 2001. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the full impact of adopting these Statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. 9 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders TrustCo Bank Corp NY: We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries (the Company) as of June 30, 2001, and the related consolidated statements of income for the three month and six month periods ended June 30, 2001 and 2000, and the consolidated statements of cash flows for the six month periods ended June 30, 2001 and 2000. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 2000 and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 19, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived. /s/ KPMG LLP - ----------------------------------- KPMG LLP Albany, New York July 13, 2001 10 TrustCo Bank Corp NY Management's Discussion and Analysis June 30, 2001 The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo Bank Corp NY ("TrustCo" or "Company") during the three month and six month periods ended June 30, 2001, with comparisons to 2000 as applicable. Net interest income and net interest margin are presented on a fully taxable equivalent basis in this discussion. The consolidated interim financial statements and related notes, as well as the 2000 Annual Report to Shareholders should be read in conjunction with this review. Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period's presentation. Per share results have been adjusted for the 15% stock split declared in August 2000. FORWARD-LOOKING STATEMENTS Statements included in this review and in future filings by TrustCo with the Securities and Exchange Commission, in TrustCo's press releases, and in oral statements made with the approval of an authorized executive officer, which are not historical or current facts, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect TrustCo's actual results, and could cause TrustCo's actual financial performance to differ materially from that expressed in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3) competition, (4) changes in the regulatory environment, and (5) changes in general business and economic trends. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. Following this discussion is the table "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of TrustCo's average interest earning assets and interest bearing liabilities for the three months and six months ended June 30, 2001 and 2000. ACQUISITION During the third quarter 2000 TrustCo acquired Landmark Financial Corporation and its wholly owned subsidiary, Landmark Community Bank, in a purchase business combination. The fair value of Landmark's assets was $26.2 million and the fair value of Landmark's liabilities was $24.3 million at the time of the acquisition. As a result of the relative immateriality of the balances acquired in the Landmark acquisition, the following discussion does not separately identify the change in balances due to the acquisition. 11 OVERVIEW TrustCo recorded net income of $11.7 million, or $0.182 of diluted earnings per share for the three months ended June 30, 2001, as compared to net income of $10.5 million or $0.166 of diluted earnings per share in the same period in 2000. For the six month period ended June 30, 2001, TrustCo recorded net income of $23.0 million, or $0.359 of diluted earnings per share, as compared to $20.8 million, or $0.327 of diluted earnings per share for the comparable period in 2000. The primary factors accounting for the year to date increases are: o A, $68.3 million increase in the average balance of interest earning assets from $2.28 billion for 2000 to $2.35 billion for the six month period ended June 30, 2001, and o An increase in total non-interest income from $6.9 million in 2000 to $13.8 million in 2001. Within this category net securities transactions were $3.2 million of gains in 2001 compared to $3.4 million of net security losses in 2000. Partially offsetting these year to date increases in net income were the following: o A decrease in net interest margin from 4.50% in 2000 to 4.28% in 2001, o An increase in the provision for loan losses by approximately $1 million, and, o An increase in non-interest expense from $23.4 million for the first six months of 2000 to $25.2 million for the first six months of 2001. ASSET/LIABILITY MANAGEMENT The Company strives to generate superior earnings capabilities through a mix of core deposits, funding a prudent mix of earning assets. This is, in its most fundamental form, the essence of asset/liability management. Additionally, TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of net interest income to changes in interest rates to an acceptable level while enhancing profitability both on a short-term and long-term basis. EARNING ASSETS Total average interest earning assets increased from $2.28 billion for the second quarter of 2000 to $2.36 billion in 2001 with an average yield of 7.74% in 2000 and 7.46% in 2001. Income on earning assets decreased slightly during this same time-period from $44.1 million in 2000 to $44.0 million in 2001. For the six month period ended June 30, 2001, the average balance of interest earning assets was $2.35 billion, a increase of $68.3 million or 3% from the balance for the comparable period in 2000 of $2.28 billion. The average yield on interest earning assets was 7.68% for 2000, compared to 7.60% in 2001. The 12 increase in the average balance of earning assets completely offset the decrease in the yield earned on these assets, thereby resulting in an increase in interest income of $1.7 million to $89.1 million for the six months of 2001, compared to $87.4 million for the six months of 2000. LOANS The average balance of loans for the second quarter was $1.50 billion in 2001 and $1.36 billion in 2000. The yield on loans decreased from 8.18% in 2000 to 7.94% in 2001. The combination of the higher average balances offset by the lower rates resulted in an increase in the interest income on loans by $2.0 million. For the six-month period ended June 30, 2001, the average balance in the loan portfolio was $1.49 billion compared to $1.36 billion for the comparable period in 2000. The average yield decreased from 8.15% in 2000 to 8.03% in 2001. The increase in the average balance of loans outstanding and the impact of the decrease in the yield resulted in total interest income of $59.9 million in 2001 compared to $55.3 million in 2000. During the first six months of 2001 the balance of the loan portfolio increased primarily as a result of the increase in the residential mortgages. The average balance of residential mortgage loans was $ 1.14 billion in 2001 compared to $1.01 billion in 2000, an increase of 13.1%. TrustCo actively markets the residential loan products within its market territory. Mortgage loan rates are affected by a number of factors including, the prime rate, the federal funds rate, rates set by competitors and secondary market participants. For 2001 the prime rate and the federal funds rate decreased significantly as a result of the 275 bp reduction in the target federal funds rate set by the Federal Reserve Board. Though interest rates on the residential mortgage loan products decreased during this time period they did not decrease as much as the reduction in the target federal funds rate. Also during this time TrustCo aggressively marketed the unique features of its loan products thereby differentiating itself from other lenders. These differences include extremely low closing cost, quick turnaround on credit decisions, no required escrow payments or private mortgage insurance and the fact that the loans are held in portfolio. The combination of competitive interest rates and the product differentiation noted above are the principal reasons for the increase in the balance of residential loans outstanding. The impact of the decrease in the benchmark interest rate indexes (prime rate, federal funds rate, etc.) is apparent in the decrease in the yield earned in the commercial, home equity and installment loan portfolios. The rates earned in 2001 were 17 bp, 85 bp and 68 bp less than in the six month period for 2000. SECURITIES AVAILABLE FOR SALE During the second quarter of 2001, the average balance of securities available for sale was $559.7 million with a yield of 7.85%, compared to $667.6 million 13 for the second quarter of 2000 with a yield of 7.37%. The combination of the decrease in average balance offset by the increase in the yields caused a decrease in interest income on securities available for sale of approximately $1.3 million between the second quarter of 2001 and 2000. The six-month results reflect the same principal trends noted for the second quarter. The total average balance of securities available for sale during the six months of 2001 was $570.9 million with an average yield of 7.78% compared to an average balance for 2000 of $667.7 million with a yield of 7.33%. The securities available for sale portfolio balance decreased because this portfolio is used to help fund the loan portfolio growth. Funding for loan growth either comes from new sources of deposits/borrowings or through the reallocation of existing assets. For the loan growth experienced in 2001 the primary source of funding was through the liquidation of securities available for sale. The yield on this portfolio increased between the comparable periods in 2000 and 2001 because the Company sold off during 2001 lower yielding investments into a strong market due to the 275 bp reduction in the target federal funds rate. The bond market tends to move in relation or reaction to the actions taken by the Federal Reserve Board, therefore the reduction in rates offered an opportunity to sell securities into a very positive bond market. Proceeds from these sales were used to fund the increase in average balances of the loan portfolio. Throughout 2000 the Federal Reserve Board was increasing interest rates which tended to increase the interest rates offered in the bond market. During this time period the target federal funds rate increased by 100 bp. This was an opportunity for TrustCo to add bonds to the portfolio at relatively attractive interest rates. The combination of adding higher yielding bonds in the second half of 2000 and selling lower yielding bonds in the first half of 2001 resulted in the increase in the yield on the securities available for sale portfolio between 2000 and 2001. FEDERAL FUNDS SOLD During the second quarter of 2001, the average balance of federal funds sold was $299.1 million with a yield of 4.36%, compared to the average balance for the three month period ended June 30, 2000 of $246.4 million with an average yield of 6.33%. The $52.7 million increase in the average balance, combined with the 197 basis points decrease in the average yield, resulted in total interest income on federal funds sold of $3.3 million for 2001 compared to $3.9 million for 2000. During the six-month period ended June 30, 2001, the average balance of federal funds was $283.7 million with a yield of 4.99% compared to an average balance of $248.5 million in 2000 with an average yield of 6.04%. The federal funds portfolio is utilized to generate additional interest income and liquidity as funds are waiting to be deployed into the loan and securities portfolios. 14 FUNDING OPPORTUNITIES TrustCo utilizes various funding sources to support its earning asset portfolio. The vast majority of the Company's funding comes from traditional deposit vehicles such as savings, interest bearing checking and time deposit accounts. During the quarter, total interest bearing liabilities were $2.04 billion for 2001 and $1.98 billion for 2000. The rate paid on total interest bearing liabilities was 3.71% for the second quarter of 2000 and 3.69% for 2001. Total interest expense for the second quarter increased approximately $537 thousand to $18.8 million for 2001 compared to $18.2 million for 2000. Similar changes in interest bearing liabilities were noted for the six-month period as was discussed for the quarter except the average yield increased from 3.66% in 2000 to 3.85% in 2001. Total interest bearing liabilities were $2.03 billion for the six-month periods ended June 30, 2001 and $1.98 billion for 2000. Demand deposit balances increased $17.3 million during the second quarter of 2001 compared to the second quarter of 2000. Demand deposits averaged $181.6 million in 2001 and $164.3 million in 2000. On a year to date basis, demand deposits were $178.9 million compared to $162.2 million in 2000. The balance of deposits has remained relatively flat between the three month and six month periods of 2001 compared to the same periods of 2000. The market territory within which the Company operates is not a growing, dynamic area and therefore opportunities to grow deposits are somewhat limited. Rates paid on deposits are based upon local market competition and funds availability. The largest component of the deposit portfolio are time deposits which had an average balance of $ 883.3 million for the six months of 2001 compared to $857.5 million for the comparable period in 2000. The average yield on these deposits was 5.50% for 2001 and 5.03% for 2000. The increase in the yield is a result of the rate increases in the second half of 2000 and the reduction in rates in 2001. Customers tended to take relatively longer maturity time deposits when rates were higher at the end of 2000 and have altered that pattern in 2001 as they move money into shorter-term deposits. Short-term borrowings for the quarter were $214.2 million in 2001 compared to $156.7 million in 2000. The average yield decreased during this time period from 5.22% to 3.55% for the second quarter of 2001. The largest component of short- term borrowing is the Trustco Short Term Investments which is only available to Trustco Trust Department customers. The increased balances in this account are a result of trust customers temporarily investing their funds in money market type instruments while waiting for some stability in the equity and bond markets. NET INTEREST INCOME Taxable equivalent net interest income decreased to $25.3 million for the second quarter of 2001. The net interest spread also decreased 26 basis points between 2000 and 2001 and the net interest margin decreased by 25 basis points. Similar changes were noted in taxable equivalent net interest income, net 15 interest spread and net interest margin for the six-month period ended June 30, 2001, compared to the same period in 2000. Net interest income for the first six months of 2001 was $50.4 million, a decrease of approximately $1.0 million over the $51.4 million for the first six months of 2000. Net interest spread decreased 27 basis points to 3.75% and net interest margin decreased 22 basis points to 4.28% for the six-month period ended June 30, 2001, compared to the six-month period ended June 30, 2000. The impact that changes in market interest rates have on the results of the Company are significant, however, management can and does make changes to the balance sheet structure during these opportunities. The target federal funds rate began 2000 at 5.50%, increased by the second quarter of 2000 to 6.50% and stayed at that level until year end 2000. Beginning in the first quarter of 2001 the rates decreased significantly, ending the second quarter at 3.75%. Therefore from the high to the low during this 18 month cycle the target federal funds rate decreased 275 bp. The impact that had on the net interest margin of TrustCo was a decrease in net interest margin for the six month period of 2001 compared to 2000 by 22 bp and by 25 bp for the second quarter of 2001 versus 2000. During periods of rising interest rate opportunities for investments and loans TrustCo sells lower yielding assets and replaces them with the higher rates being offered. On the funding side, the Company looks to generate deposits that are short term in nature with the expectation that if rates fall they could be re-priced at lower rates. Therefore the strategy followed during rising rates is for the Company to invest in longer term/higher yielding assets funded with core deposit relationships. As market interest rates fall the Company strives to gather longer term funding sources at the lower cost. Investment opportunities in a falling market rate environment tend to be centered in the loan portfolio. NONPERFORMING ASSETS Nonperforming assets include nonperforming loans, which are those loans in a nonaccrual status, loans that have been restructured, and loans past due three payments or more, and still accruing interest. Also included in the total of nonperforming assets are foreclosed real estate properties, which are categorized as real estate owned. Impaired loans are considered to be those commercial and commercial real estate loans in a nonaccrual status, and loans restructured since January 1, 1995, when the accounting standards required the identification, measurement and reporting of impaired loans. The following will describe the nonperforming assets of TrustCo as of June 30, 2001. NONPERFORMING LOANS: Total nonperforming loans were $9.3 million at June 30, 2001, a decrease from the $11.8 million of nonperforming loans at June 30, 2000. Nonaccrual loans were $3.7 million at June 30, 2001 down from the $5.0 million at June 30, 2000. Restructured loans were $6.5 million at June 30, 2000 compared to $5.0 million at June 30, 2001. Loans past due three payments or more and still accruing interest were $692 thousand at June 30, 2001 and $256 thousand at June 30, 2000. 16 Of the $9.3 million of nonperforming loans at June 30, 2001, all but approximately $458 thousand are residential real estate or retail consumer loans. In prior years the vast majority of nonperforming loans were concentrated in the commercial and commercial real estate portfolios. There has been a dramatic shifting of nonperforming loans to the residential real estate and retail consumer loan portfolio for several factors, including: o The overall emphasis within TrustCo for residential real estate originations, o The relatively weak economic environment in the upstate New York territory, and The reduction in real estate values in TrustCo's market area that has occurred since the middle of the 1990's, thereby causing a reduction in the collateral that supports the real estate loans. Consumer defaults and bankruptcies have increased dramatically over the last several years and this has lead to an increase in defaults on loans. TrustCo strives to identify borrowers that are experiencing financial difficulties and to work aggressively with them to minimize losses or exposures. Total impaired loans at June 30, 2001 of $5.3 million, consisted of restructured retail loans. During the first six months of 2001, there have been $789 thousand of commercial loan charge offs, $468 thousand of consumer loan charge offs and $1.85 million of mortgage loan charge offs as compared with $1.2 million of commercial loan charge offs, $254 thousand of consumer loan charge offs and $1.6 million of mortgage loan charge offs in the first six months of 2000. Recoveries during the first six-month periods have been $1.14 million in 2001 and $876 thousand in 2000. REAL ESTATE OWNED: Total real estate owned of $1.7 million at June 30, 2001 increased by $317 thousand since June 30, 2000. ALLOWANCE FOR LOAN LOSSES: The balance of the allowance for loan losses is maintained at a level that is, in management's judgment, representative of the amount of the risk inherent in the loan portfolio. At June 30, 2001, the allowance for loan losses was $56.9 million, which represents a slight increase from the $56.3 million in the allowance at December 31, 2000. The allowance represents 4.03% of the loan portfolio as of June 30, 2000 compared to 3.76% at June 30, 2001. The provision charged to expense was $800 thousand compared to $1.1 million for the second quarter of 2000 compared to 2001. For the six-month periods, the provision charged to expense was $1.7 million for 2000 and $2.6 million for 2001. In deciding on the adequacy of the allowance for loan losses, management reviews the current nonperforming loan portfolio as well as loans that are past due and not yet categorized as nonperforming for reporting purposes. Also, there are a number of other factors that are taken into consideration, including: o The magnitude and nature of the recent loan charge offs and the movement of charge offs to the residential real estate loan portfolio, 17 o The growth in the loan portfolio and the implication that has in relation to the economic climate in the bank's business territory, o Changes in underwriting standards in the competitive environment in which TrustCo operates, o Significant growth in the level of losses associated with bankruptcies and the time period needed to foreclose, secure and dispose of collateral, and o The relatively weak economic environment in the upstate New York territory combined with declining real estate prices. Consumer bankruptcies and defaults in general have risen significantly during the 1990's. This trend appears to be continuing as a result of economic strife and the relative ease of access by consumers to additional credit. Job growth in the upstate New York area has been modest to declining and there continues to be a shifting of higher paying jobs in manufacturing and government to lower paying service jobs. In light of these trends, management believes the allowance for loan losses is reasonable in relation to the risk that is present in its current loan portfolio. LIQUIDITY AND INTEREST RATE SENSITIVITY TrustCo seeks to obtain favorable sources of funding and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's earnings performance and strong capital position enable the Company to raise funds easily in the marketplace and to secure new sources of funding. The Company actively manages its liquidity through target ratios established under its liquidity policies. Continual monitoring of both historical and prospective ratios allows TrustCo to employ strategies necessary to maintain adequate liquidity. Management has also defined various degrees of adverse liquidity situations, which could potentially occur, and has prepared appropriate contingency plans should such a situation arise. NONINTEREST INCOME Total noninterest income for the three months ended June 30, 2001 was $7.5 million, an increase of $4.4 million from the comparable period in 2000. During the 2001 period, the Company recorded net securities gains of $2.1 million compared to $2.3 million of net losses for the comparable period in 2000. Excluding these securities transactions, noninterest income remained constant at $5.4 million in the second quarter of 2001 and 2000. Similar results were also recognized for the six months of 2001 compared to 2000. Total noninterest income was $13.8 million for 2001 compared to $6.9 million for 2000. Excluding net securities transactions, the balances for 2001 and 2000 would have been $10.6 million and $10.2 million respectively. 18 NONINTEREST EXPENSES Total noninterest expense for the second quarter of 2001 and 2000 was $12.9 million and $11.4 million respectively. For the six-months ended June 30, 2001 and 2000, total noninterest expense was $25.2 million and $23.4 million respectively. Salaries and employee benefits cost increased from $5.7 million for the second quarter of 2000 to $6.6 million for the comparable period in 2001. The increase is primarily attributable to an increase in the cost associated with the benefit plans for employees and officers. The six month results reflect the same conditions. Net occupancy expense increased by approximately $284 thousand between the second quarter of 2000 compared to the second quarter of 2001. The increase is a result of increased utility expense and additional lease expense of new branches. Net occupancy expense for the six months of 2001 were $2.8 million compared to $2.4 million for the comparable period in 2000. INCOME TAXES In the second quarter of 2001 and 2000, TrustCo recognized income tax expense of $5.4 million and $5.1 million respectively. This resulted in an effective tax rate of 31.8% for 2001 and 32.8% for 2000. For the six-months of 2001, total income tax expense was $10.6 million compared to $10.3 million for 2000. 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 traditionally, most of its capital requirements are met through the capital retained in the Company (after the dividends on the common stock). Total shareholders' equity at June 30, 2001 was $201.0 million, an increase of $5.2 million from the year-end of 2000 balance of $195.8 million. The change in the shareholders' equity between year-end 2000 and June 30, 2001 primarily reflects the net income retained by TrustCo, the proceeds from shares issued upon the exercise of stock options, a $2.2 million increase in the net unrealized gain on securities available for sale, less approximately $3.6 million thousand increase in the amount of Treasury stock. TrustCo declared dividends of $0.300 per share during the first six-months of 2001 compared to $0.261 in 2000. These resulted in a dividend payout ratio of 77.2% in 2000 and 80.5% in 2001. The Company achieved the following capital ratios as of June 30, 2001 and 2000: 19
June 30, -------------------- Minimum Regulatory 2001 2000 Guidelines ---- ---- ---------- Tier 1 risk adjusted capital ................. 13.43% 13.86 4.00 Total risk adjusted capital ................. 14.72 15.15 8.00
In addition, at June 30, 2001 and 2000, the consolidated equity to total assets ratio (excluding the mark to market effect of securities available for sale) was 7.28% and 7.31%, respectively. 20 TrustCo Bank Corp NY Management's Discussion and Analysis STATISTICAL DISCLOSURE I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following table summarizes the component distribution of average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing libilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Non- accrual loans are included in loans for this analysis. The average balances of sec- urities available for sale is calculated using amortized costs for these securities. Included in the balance of shareholders' equity is unrealized appreciation ,net of tax, in the available for sale portfolio of $21.4 million and $1.2 Million in the second quarter of 2001 and 2000, respectively. The subtotals contained in the following table are the arithmetic totals of the items in that category.
Second Quarter Second Quarter 2001 2000 -------------------------------- --------------------------- Average Average Average Average Change in Variance Variance (dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate Income/ Change Change Expense - ---------------------- ------- -------- ---- ------- -------- ---- -------- ------- ------- Assets Commercial loans ...................... $ 203,709 $ 4,366 8.58% $ 192,827 $ 4,283 8.90% 83 802 (719) Residential mortgage loans ............ 1,148,496 22,395 7.80% 1,013,041 19,784 7.81% 2,611 2,817 (206) Home equity lines of credit ........... 126,626 2,336 7.40% 135,888 3,104 9.16% (768) (201) (567) Installment loans ..................... 22,270 688 12.38% 20,064 652 13.04% 36 205 (169) ---------- ---------- ---- ----------- ------- ------ ------ ------ ------ Loans, net of unearned income ......... 1,501,101 29,785 7.94% 1,361,820 27,823 8.18% 1,962 3,623 (1,661) Securities available for sale: U.S. Treasuries and agencies ......... 141,928 2,716 7.65% 211,562 3,957 7.48% (1,241) (1,847) 606 Mortgage-backed securities ........... 144,895 2,884 7.96% 214,168 3,850 7.19% (966) (3,211) 2,245 States and political subdivisions .... 194,542 3,888 7.99% 144,755 2,912 8.05% 976 1,105 (129) Other ................................ 78,340 1,494 7.63% 97,080 1,583 6.53% (89) (1,190) 1,101 ---------- ---------- ---- ----------- ------- ------ ------ ------ ------ Total securities available for sale 559,705 10,982 7.85% 667,565 12,302 7.37% (1,320) (5,143) 3,823 Federal funds sold .................... 299,114 3,252 4.36% 246,440 3,880 6.33% (628) 3,701 (4,329) Other short-term investments .......... -- -- -- 7,844 119 6.09% (119) (119) -- ---------- ---------- ---- ----------- ------- ------ ------ ------ ------ Total Interest earning assets ....... 2,359,920 44,019 7.46% 2,283,669 44,124 7.74% (105) 2,062 (2,167) Allowance for loan losses ............. (57,095) (56,297) Cash and noninterest earning assets ... 166,042 129,689 ---------- ---------- Total assets ........................ $2,468,867 $2,357,061 ========== ========== Liabilities and shareholders' equity Deposits: Interest bearing checking .......... $ 279,755 742 1.06% $ 274,703 728 1.07% 14 35 (21) Money market accounts .............. 61,218 418 2.74% 56,025 380 2.73% 38 37 1 Savings ............................ 608,071 4,092 2.70% 635,721 4,268 2.70% (176) (176) -- Time deposits ...................... 873,199 11,606 5.33% 853,244 10,814 5.10% 792 268 524 ---------- ---------- ---- ----------- ------- ------ ------ ------ ------ Total time deposits ................. 1,822,243 16,858 3.71% 1,819,693 16,190 3.58% 668 164 504 Short-term borrowings ................. 214,153 1,893 3.55% 156,691 2,035 5.22% (142) 2,728 (2,870) Long-term debt ........................ 794 11 5.91% -- -- -- 11 11 -- ---------- ---------- ---- ----------- ------- ------ ------ ------ ------ Total interest bearing liabilities .. 2,037,190 18,762 3.69% 1,976,384 18,225 3.71% 537 2,903 (2,366) Demand deposits ....................... 181,614 164,339 Other liabilities ..................... 49,526 44,265 Shareholders' equity .................. 200,537 172,073 Total liab. & shareholders' equity .. $2,468,867 $2,357,061 ========== ========== Net interest income ................... 25,257 25,899 (642) (841) 199 ---------- ---------- ------ ------ ------ Net interest spread ................... 3.77% 4.03% Net interest margin (net interest income to total interest earning assets) ............................ 4.28% 4.53% Tax equivalent adjustment ............. 1,562 1,092 ---------- ---------- Net interest income per book ....... $ 23,695 $ 24,807 ========== ==========
21 TrustCo Bank Corp NY Management's Discussion and Analysis STATISTICAL DISCLOSURE I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following table summarizes the component distribution of average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing libilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Non-accrual loans are included in loans for this analysis. The average balances of securities available for sale is calculated using amortized costs for these securities. Included in the balance of shareholders' equity is unrealized appreciation net of tax, in the available for sale portfolio of $21.4 million and $3.1 million for the six months ended June 30, 2001 and 2000,respectively. The subtotals contained in the following table are the arithmetic totals of the items in that category.
Six Months Six Months 2001 2000 -------------------------------- --------------------------- Change in Average Average Average Average Interest Variance Variance (dollars in thousands) Balance Interest Rate Balance Interest Rate Income/ Balance Rate Expense Change Change - ---------------------- ------- -------- ---- ------- -------- ---- -------- ------- ------- Assets Commercial loans ...................... $ 203,353 $ 8,826 8.70% $ 193,122 $ 8,555 8.87% 271 688 (417) Residential mortgage loans ............ 1,138,488 44,508 7.82% 1,006,854 39,319 7.81% 5,189 5,146 43 Home equity lines of credit ........... 127,975 5,097 8.03% 136,798 6,057 8.88% (960) (387) (573) Installment loans ..................... 23,020 1,436 12.58% 20,722 1,370 13.26% 66 237 (171) ------ ----------- -------- ------ ------ ------ ------ Loans, net of unearned income ......... 1,492,836 59,867 8.03% 1,357,496 55,301 8.15% 4,566 5,684 (1,118) Securities available for sale: U.S. Treasuries and agencies ......... 154,083 5,900 7.66% 212,298 7,891 7.43% (1,991) (2,651) 660 Mortgage-backed securities ........... 169,041 6,478 7.66% 213,354 7,603 7.13% (1,125) (2,509) 1,384 States and political subdivisions .... 184,475 7,405 8.03% 141,516 5,681 8.03% 1,724 1,724 -- Other ................................ 63,319 2,412 7.63% 100,516 3,298 6.57% (886) (2,103) 1,217 ------ ----------- -------- ------ ------ ------ ------ Total securities available for sale 570,918 22,195 7.78% 667,684 24,473 7.33% (2,278) (5,539) 3,261 Federal funds sold .................... 283,723 7,024 4.99% 248,549 7,467 6.04% (443) 2,143 (2,586) Other short-term investments .......... -- -- -- 5,435 164 6.05% (164) (164) -- ------ ----------- -------- ------ ------ ------ ------ Total Interest earning assets ....... 2,347,477 89,086 7.60% 2,279,164 87,405 7.68% 1,681 2,124 (443) Allowance for loan losses ............. (57,060) (56,388) Cash and noninterest earning assets ... 164,855 129,358 ---------- ----------- Total assets ........................ $2,455,272 $ 2,352,134 ========== =========== Liabilities and shareholders' equity Deposits: Interest bearing checking.......... $ 276,739 1,459 1.06% $ 272,339 1,443 1.07% 16 25 (9) Money market accounts .............. 60,269 817 2.73% 57,538 781 2.73% 36 36 -- Savings .............................. 599,854 8,032 2.70% 637,295 8,562 2.70% (530) (530) -- Time deposits ........................ 883,256 24,094 5.50% 857,473 21,459 5.03% 2,635 644 1,991 ------ ----------- -------- ------ ------ ------ ------ Total time deposits ................. 1,820,118 34,402 3.81% 1,824,645 32,245 3.55% 2,157 175 1,982 Short-term borrowings ................. 206,928 4,265 4.16% 152,866 3,781 4.97% 484 2,037 (1,553) Lond-term debt ........................ 833 24 5.91% -- -- -- 24 24 -- ------ ----------- -------- ------ ------ ------ ------ Total interest bearing liabilities .. 2,027,879 38,691 3.85% 1,977,511 36,026 3.66% 2,665 2,236 429 Demand deposits ....................... 178,887 162,195 Other liabilities ..................... 49,096 43,653 Shareholders' equity .................. 199,410 168,775 ---------- ----------- Total liab. & shareholders' equity .. $2,455,272 $ 2,352,134 ========== =========== Net interest income ................... 50,395 51,379 (984) (112) (872) ----------- -------- ------ ------ ------ Net interest spread ................... 3.75% 4.02% Net interest margin (net interest income to total interest earning assets) ............................ 4.28% 4.50% Tax equivalent adjustment ............. 2,800 2,129 ----------- ------- Net interest income per book ....... $ 47,595 $ 49,250 =========== ===========
22 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's interest rate risk position since December 31, 2000. Other types of market risk, such as foreign exchange rate risk and commodity price risk do not arise in the normal course of the Company's business activities. 23 SIGNATURES Pursuant to the requirements 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 Date: August 14, 2001 By:/S/ Robert A. McCormick ------------------------ Robert A. McCormick President and Chief Executive Officer Date: August 14, 2001 By:/S/ Robert T. Cushing ------------------------ Robert T. Cushing Vice President and Chief Financial Officer 24 Exhibits Index Reg S-K Exhibit No. Description Page No. ________________________________________________________________________________ 10(a) Amendment No. 6 to Employment agreement between Trustco Bank, National Association and TrustCo Bank Corp NY and Robert A. McCormick 26 10(b) Amendment No. 2 to Second Restatement of Trustco Bank Supplemental Retirement Plan 28 10(c) Amendment No. 3 to Restatement of Trustco Bank 30 Executive Officer Incentive Plan 10(d) Amendment No. 4 to Restated Agreement for Supplemental Retirement Benefits for Robert A. McCormick 32 22 Submission of Matters to Vote of Security Holders - Annual Meeting 34 25 EX-10.(A) 3 ex10-a.txt EMPLOYMENT AGREEMENT Exhibit 10(a) AMENDMENT NO. 6 TO EMPLOYMENT AGREEMENT BETWEEN TRUSTCO BANK, NATIONAL ASSOCIATION AND TRUSTCO BANK CORP NY AND ROBERT A. McCORMICK WHEREAS, TrustCo Bank Corp NY, a New York corporation (hereinafter referred to as "TrustCo"), and Trustco Bank, National Association, a national bank duly organized and existing under the laws of the United States (hereinafter referred to as the "Corporation") entered into an Employment Agreement (hereinafter referred to as the "Agreement") with Robert A. McCormick (hereinafter referred to as the "Executive"); and WHEREAS, TrustCo, the Corporation and the Executive desire to amend the Agreement, effective as of May 15, 2001, to (i) address the payment of Termination Benefits, as defined in the Agreement, in the event that Section 162(m) limits the deductibility of the payment of such Termination Benefits by TrustCo and/or the Corporation and (ii) eliminate elections with respect to the form of payment of Termination Benefits; NOW, THEREFORE, the Agreement is hereby amended, effective as of May 15, 2001, so that it will read as follows: I. Paragraph (b) of Section 8 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof: "(b) The Companies shall pay to the Executive within ten (10) days of his Termination an additional lump sum amount equal to three (3) times the Annual Compensation then in effect pursuant to paragraph 4 above; provided, however, that if the payment of the Termination Benefits, together with the Executive's other compensation for the calendar year (as defined in Section 162(m) of the Internal Revenue Code) is expected to exceed the limitation on deductible compensation set forth in Section 162(m), the payment of Termination Benefits will automatically be deferred under the Trustco Bank Executive Officer Incentive Plan and will not become payable until (i) the earliest calendar year in which the payment of such deferred amount (and interest thereon), together with the Executive's other compensation for the calendar year (as defined in Section 162(m) is not expected to exceed the Section 162(m) limitation, or (ii) the Section 162(m) limitation is no longer applicable to compensation paid to the Executive, and" IN WITNESS WHEREOF, TrustCo, the Corporation and the Executive have caused this Amendment No. 6 to be executed by its duly authorized officer this 15th day of May 2001. 26 TRUSTCO BANK CORP NY ATTEST: By: /s/ Henry C. Collins _______________________________ Henry C. Collins, Secretary TRUSTCO BANK, NATIONAL ASSOCIATION /s/ William M. McCartan _________________________________________ William M. McCartan, Assistant Secretary By:/s/ Henry C Collins ___________________ Henry C. Collins EXECUTIVE /s/ Robert.A. Mccormick _______________________ Robert A. McCormick 27 EX-10.(B) 4 ex10-b.txt EMPLOYMENT AGREEMENT Exhibit 10(b) AMENDMENT NO. 2 TO SECOND RESTATEMENT OF TRUSTCO BANK SUPPLEMENTAL RETIREMENT PLAN WHEREAS, Trustco Bank, National Association, a national bank duly organized and existing under the laws of the United States (hereinafter referred to as the "Corporation") maintains the Trustco Bank Supplemental Retirement Plan (hereinafter referred to as the "Plan"); and WHEREAS, the Corporation desires to amend said Plan effective as of January 1, 2002, unless otherwise indicated; NOW, THEREFORE, the Corporation does hereby amend the Plan effective as of January 1, 2002, unless otherwise indicated, so that it will read as follows: I. The following new Section 3.7 is hereby added after Section 3.6 of the Plan: "SECTION 3.7. Limitation on Supplemental Account Balance. (a) Not-withstanding the above, the Supplemental Account Balance on any Valuation Date on or after December 31, 2001 shall not exceed seven million dollars (not including the interest credits provided in Section 3.7(b)), less the Actuarial Equivalent of the amount of any previous distribution under Section 4.3 or 4.4. (b) After the Monthly Allocation Date on which the Supplemental Account Balance is limited as provided in Section 3.7(a), it shall be increased as of each subsequent Valuation Date by an amount equal to interest on the Supplemental Account Balance as of the 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 interest rate on 30-year Treasury securities as specified by the Commissioner of the Internal Revenue Service for the month of November of the calendar year immediately preceding the calendar year of the determination (or such other interest rate as may be then applied for purposes of determining the amount of a lump sum distribution, as specified in Section 1.3C of the Retirement Plan), prorated for periods of less than one year." 28 II. Throughout the Plan, the following parenthetical phrase is added after the phrase "the interest rate on 30-year Treasury securities as specified by the Commissioner of the Internal Revenue Service for the month of November of the calendar year preceding the calendar year of the determination:" "(or such other interest rate as may be then applied for purposes of determining the amount of a lump sum distribution, as specified in Section 1.3C of the Retirement Plan)" IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 2 to be executed by its duly authorized officer this 15th day of May, 2001. ATTEST: TRUSTCO BANK, NATIONAL ASSOCIATION /s/ William M. McCartan By:/s/ Henry C. Collins ________________________ _____________________________________ Willaim M. McCartan, Henry C. Collins, Assistant Secretary Secretary 29 EX-10.(C) 5 ex10-c.txt EMPLOYMENT AGREEMENT Exhibit 10(c) AMENDMENT NO. 3 TO RESTATEMENT OF TRUSTCO BANK EXECUTIVE OFFICER INCENTIVE PLAN WHEREAS, Trustco Bank, National Association (hereinafter referred to as (the "Corporation") maintains the Trustco Bank Executive Officer Incentive Plan (hereinafter referred to as the "Plan"); and WHEREAS, the Corporation desires to amend said Plan effective as of May 15, 2001; NOW, THEREFORE, the Corporation does hereby amend the Plan effective as of May 15, 2001, so that it will read as follows: I. Section 3.4 of the Plan is hereby deleted in its entirety and the following is substituted lieu thereof: "Section 3.4 Incentive Awards that were automatically deferred under the Plan prior to January 1, 2002, pursuant to Section 3.4 of the Plan as then in effect, will be accounted for through a separate subaccount of the Participant's Deferred Compensation Account and will be credited with interest as provided in Section 4.3 of the Plan. Amounts in such subaccount will become payable in the earliest calendar year in which (i) the payment of such deferred amount (and interest thereon), together with other compensation to be paid to the Participant and reportable on the Participant's Form W-2, is not expected to exceed the Section 162(m) limitation, or (ii) the Section 162(m) limitation is no longer applicable to compensation paid to the Participant. Deferred Incentive Awards, and earnings thereon, which become payable under this Section 3.4 will be paid in the order such Incentive Awards were deferred." II. The title of ARTICLE IV of the Plan is hereby deleted and the following is substituted in lieu thereof: "ARTICLE IV DEFERRAL OF INCENTIVE AWARDS AND TERMINATION BENEFITS" III. The following new Section 4.5 is hereby added after Section 4.4 of the Plan: "Section 4.5 Payment of termination benefits, as defined under a Participant's employment agreement, will automatically be deferred to the extent that such payment, together with a Participant's other compensation for the calendar year, as defined in Section 162(m) of the Code, is expected to exceed the Code Section 162(m) limitation on deductible compensation paid to the Participant. 30 The date of the initial deferral will be the date the termination benefits would have been paid to the Participant, but for the provisions of this Section 4.5. Such deferred amount will be credited to a separate subaccount of the Participant's Deferred Compensation Account and will be credited with interest as provided in Section 4.3 of the Plan. Any amount deferred pursuant to this Section 4.5 will become payable in the earliest calendar year in which (i) the payment of such deferred amount (and interest thereon), together with the Participant's other compensation for the calendar year as defined in Code Section 162(m), does not exceed the Code Section 162(m) limitation, or (ii) the Section 162(m) limitation is no longer applicable to compensation paid to the Participant." IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 3 to be executed by its duly authorized officer this 15th day of May, 2001. ATTEST: TRUSTCO BANK, NATIONAL ASSOCIATION /s/ William M. McCartan By: /s/ Henry C. Collins ________________________________________ ___________________________ William M. McCartan, Assistant Secretary Henry C. Collins, Secretary 31 EX-10.(D) 6 ex10-d.txt EMPLOYMENT AGREEMENT Exhibit 10(d) AMENDMENT NO. 4 TO RESTATED AGREEMENT FOR SUPPLEMENTAL RETIREMENT BENEFITS FOR ROBERT A. McCORMICK WHEREAS, TrustCo Bank Corp NY, a New York corporation (hereinafter referred to as "TrustCo"), Trustco Bank, National Association, a national bank duly organized and existing under the laws of the United States (hereinafter referred to as the "Corporation"), and Robert A. McCormick (hereinafter referred to as the "Executive") entered into a Restated Agreement for Supplemental Retirement Benefits, dated as of January 1, 1994 (hereinafter referred to as the "Agreement"); and WHEREAS, TrustCo, the Corporation and the Executive desire to amend the Agreement, effective as of December 31, 2001, to correct and clarify the formula for actuarially calculating the Executive's projected benefit at normal retirement date. NOW, THEREFORE, the Agreement is hereby amended, effective as of December 31, 2001, so that it will read as follows: I. Section 2.4 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof: "Section 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 Account Balance Increment for each Determination Year subsequent to his Normal Retirement Date shall be equal to an interest credit equal to the Supplemental Account Balance on the prior Valuation Date multiplied by the interest rate on 30-year Treasury securities as specified by the Commissioner of the Internal Revenue Service for the month of November of the calendar year preceding the calendar year of the determination (or such other interest rate as may be then applied for purposes of determining the amount of a lump sum distribution, as specified in Section 1.3C of the Trustco Retirement Plan)." II. Throughout the Agreement, the following parenthetical phrase is added after the phrase "the interest rate on 30-year Treasury securities as specified by the Commissioner of the Internal Revenue Service for the month of November of the calendar year preceding the calendar year of the determination:" "(or such other interest rate as may be then applied for purposes of determining the amount of a lump sum distribution, as specified in Section 1.3C of the Trustco Retirement Plan)" 32 IN WITNESS WHEREOF, TrustCo, the Corporation and the Executive have caused this Amendment No. 4 to be executed by its duly authorized officer this 15th day of May, 2001. TRUSTCO BANK CORP NY ATTEST: By:/s/ Henry C. Collins ___________________________ Henry C. Collins, Secretary TRUSTCO BANK, NATIONAL ASSOCIATION /s/ William M. McCartan ________________________________________ William M. McCartan, Assistant Secretary By:/s/ Henry C. Collins ___________________________ Henry C. Collins, Secretary EXECUTIVE /S/Robert A. McCormick ______________________ Robert A. McCormick 33 EX-22 7 ex-22.txt VOTE OF SECURITYHOLDERS Exhibit 22 Item 4. Submission of Matters to Vote of Security Holders - Annual Meeting At the annual meeting held May 14 2001, shareholders of the Company were asked to consider the Company's nominees for directors and to elect four (4) directors to serve for a term of three (3) years. The Company's nominees for director were: Joseph A Lucarelli, Anthony J. Marinello, MD, Robert A. McCormick, and Robert T. Cushing. The results of shareholder voting are as follows: 1. Election of Directors: Director For Withheld Abstain ________ ___ _________ ______ Joseph A. Lucarelli 54,849,811 1,419,078 -0- Anthony J. Marinello, MD 54,876,846 1,392,043 -0- Robert A. McCormick 52,503,424 3,765,465 -0- Robert T. Cushing 52,514,761 3,754,128 -0- Directors continuing in office are Barton A. Andreoli, Nancy A. McNamara, Dr. James H. Murphy, Richard J. Murray, Jr., William D. Powers, and William J. Purdy. 2. Proposal to ratify the appointment of KPMG LLP as the independent certified public accountants of TrustCo for the fiscal year ending December 31, 2001. For Withheld Abstain ___ _________ _________ 54,509,022 303,815 1,456,053 34 -----END PRIVACY-ENHANCED MESSAGE-----