FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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, 1998
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 incorporation or organization) (I.R.S. Employer 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:
Title of each class Name of exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
(Title of class)
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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.[X]
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, 1999
$1 Par Value 26,886,140
The aggregate market value of registrant's common stock (based upon the closing
price on March 1, 1999) held by non-affiliates was approximately $722,565,013.
Documents Incorporated by Reference(1) Portions of registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998 (Part I and Part II).
(2) Portions of registrant's Proxy Statement filed for its Annual Meeting of
Shareholders to be held May 17, 1999 (Part III).
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INDEX
Description Page
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PART I
Item 1 Business 1
Item 2 Properties 5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security 5
Holders
PART II
Item 5 Market for the Registrant's Common Equity and 7
Related Stockholder Matters
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about 7
Market Risk
Item 8 Financial Statements and Supplementary Data 7
Item 9 Changes in and Disagreements with Accountants 7
On Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of Registrant 7
Item 11 Executive Compensation 8
Item 12 Security Ownership of Certain Beneficial Owners 8
And Management
Item 13 Certain Relationships and Related Transactions 8
PART IV
Item 14 Exhibits, Financial Statement Schedules, and 8
Reports on Form 8-K
EXHIBITS INDEX 15
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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 480 full-time equivalent employees at year-end 1998. TrustCo had 8,941
shareholders of record as of December 31, 1998, and the closing price of the
TrustCo common stock at that date was $30.00.
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. The Bank operates 33 automatic teller machines and
53 banking offices in Albany, Columbia, Greene, Rensselaer, Saratoga,
Schenectady, Schoharie, 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. An operating subsidiary of the Bank, Trustco Realty Corp.,
holds certain mortgage assets which are serviced by the Bank. The Bank accounted
for substantially all of TrustCo's 1998 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 $1.24 billion as of
December 31, 1998.
The daily operations of the Bank remain the responsibility of its Board of
Directors and
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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 offices, and 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. The Bank 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 "Reserve Board"). The Act
requires TrustCo to obtain prior Reserve Board approval for bank and non-bank
acquisitions and restricts the business operations permitted to TrustCo. The
Bank, as a national banking association, is subject to regulation and
examination by the Office of the Comptroller of the Currency ("OCC"). Because
the Federal Deposit Insurance Corporation ("FDIC") provides deposit insurance to
the Bank, the Bank is also subject to its supervision and regulation even though
the FDIC is not its primary federal regulator. Virtually all aspects of
TrustCo's and the Bank's business are subject to regulation and examination by
the Reserve Board, the FDIC and the OCC.
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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, 1998, which appears on
pages 34 and 35 thereof and contains information concerning restrictions of
TrustCo's ability to pay dividends, is hereby incorporated by reference.) In
addition, the FDIC and the Reserve 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 Reserve Board, which exerts considerable influence over the cost
and availability of funds obtained for lending and investing.
See Note 13 of the consolidated financial statements contained in TrustCo's
Annual Report to Shareholders for the year ended December 31, 1998, which
appears on page 43 thereof and contains information concerning regulatory
capital requirements.
Recent Legislation
In September 1994, the Reigle-Neal Interstate Banking and Branching Efficiency
Act of 1994 was enacted. As of September 29, 1995, adequately capitalized and
managed bank holding companies are permitted to acquire banks in any state
subject to state deposit caps and a 10% nationwide deposit cap. In addition,
this law provides for full interstate branching by bank merger commencing on
June 1, 1997. States were authorized to "opt-out" of this branching provision
prior to the effective date, and, alternatively, states were authorized to
"opt-in" earlier than June 1, 1997. New York "opted-in" prior to June 1, 1997,
by allowing out-of-state banks with reciprocal branching laws to branch in New
York through acquisition.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was signed
into law on September 30, 1996. This law streamlined the non-banking activity
application process for well-capitalized and well-managed bank holding
companies. Under this law, qualified bank holding companies may commence a
regulatorily approved non-banking activity without prior notice to the Reserve
Board although written notice is required within ten days after commencing the
activity. Also under this law, the prior notice period is reduced to twelve days
in the event of any non-banking acquisition or share purchase, assuming the size
of the acquisition does not exceed 10% of risk-weighted assets of the acquiring
bank holding company and the consideration does not exceed 15% of Tier 1
capital. This law also provides for the recapitalization of the Savings
Association Insurance Fund which generally insures the deposits of thrift
institutions, in order to bring it into parity with the Bank Insurance Fund.
The references in this section to various aspects of supervision and regulation
are brief summaries which do not purport to be complete and which are qualified
in their entirety by reference to applicable laws, rules and regulations. Any
change in applicable laws or regulations may have a material effect on the
business and prospects of TrustCo. The operations of TrustCo may be affected by
legislative changes and by the policies of
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various regulatory authorities. TrustCo is unable to predict the nature or the
extent of the effects on its business and earnings that fiscal or monetary
policies, economic controls or new federal or state legislation may have in the
future. Regulation by the federal and state banking authorities is designed to
protect depositors rather than shareholders.
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 6 through 26 of TrustCo's
Annual Report to Shareholders for the year ended December 31, 1998, 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.
Forward-Looking Statements
Statements included in the Management's Discussion and Analysis of Operations of
TrustCo's Annual Report to Shareholders for the year ended December 31, 1998,
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: (i) credit risk; (ii) interest rate risk; (iii) competition; (iv)
certain vendors of critical systems or services failing to comply with Year 2000
programming issues; (v) changes in the regulatory environment; and (vi) 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.
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Item 2. Properties
TrustCo's executive offices are located at 320 State Street, Schenectady, New
York, 12305. The Bank operates 53 offices, of which 20 are owned and 33 are
leased from others. The asset value of these properties, when considered in the
aggregate, is 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.
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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
Name, Age and Principal Occupations Became
Position Or Employment Since Executive
With Trustco January 1, 1992 of TrustCo
- --------------------------------------------------------------------------------
Robert A.McCormick,62 President and Chief Executive Officer, 1984
President and Trustco Bank Corp NY. President and
Chief Executive Officer Chief Executive Officer, Trustco Bank,
National Association
Robert T. Cushing, 43, Vice President and Chief Financial Officer, 1994
Vice President and Trustco Bank Corp NY since 1994.
Chief Financial Officer Senior Vice President and Chief Financial
Officer, Trustco Bank, National
Association since 1994. Partner, KPMG
Peat Marwick LLP (1987-1994).
Nancy A. McNamara, 49, Vice President, TrustCo Bank Corp NY 1992
Vice President since 1992. Senior Vice President,
Trustco Bank, National Association
since 1988.
William F. Terry, 57, Secretary, TrustCo Bank Corp NY since 1990
Secretary 1990. Senior Vice President, Trustco
Bank, National Association since 1987.
Secretary, Trustco Bank, National
Association since 1990.
Ralph A. Pidgeon, 56, Vice President and Assistant Secretary, 1995
Vice President and TrustCo Bank Corp NY since 1995.
Assistant Secretary Senior Vice President, Trustco Bank,
National Association since 1978.
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.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Page 1 and page 48 of TrustCo's Annual Report to Shareholders for the year ended
December 31, 1998, are incorporated herein by reference. TrustCo had 9,120
shareholders of record as of March 1, 1999, and the closing price of the
Corporation's common stock on that date was $26.875.
Item 6. Selected Financial Data
Page 24 of TrustCo's Annual Report to Shareholders for the year ended December
31, 1998, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 6 through 26 of TrustCo's Annual Report to Shareholders for the year ended
December 31, 1998, are incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Pages 18 through 20 of TrustCo's Annual Report to Shareholders for the year
ended December 31, 1998, are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of KPMG LLP on pages
29 through 44 of TrustCo's Annual Report to Shareholders for the year ended
December 31, 1998, 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 Section 16(a) "Beneficial Ownership Reporting Compliance"
on page 26, of TrustCo's Proxy Statement filed for its Annual Meeting of
Shareholders to be held May 17, 1999, 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."
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Item 11. Executive Compensation
The information under the captions "TrustCo and Trustco Bank Executive Officer
Compensation" and "TrustCo Retirement Plans" on pages 7 through 12 of TrustCo's
Proxy Statement filed for its Annual Meeting of Shareholders to be held May 17,
1999, 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," and "Information on TrustCo Executive Officers Not Listed Above," on
pages 3 through 6 and "Ownership Of TrustCo Common Stock By Certain Beneficial
Owners" on page 25 of TrustCo's Proxy Statement filed for its Annual Meeting of
Shareholders to be held May 17, 1999, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the caption "Transactions with TrustCo and Trustco Bank
Directors, Executive Officers and Associates" on page 26 of TrustCo's Proxy
Statement filed for its Annual Meeting of Shareholders to be held May 17, 1999
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 in item
8.
Consolidated Statements of Condition -- December 31, 1998 and 1997.
Consolidated Statements of Income -- Years Ended December 31, 1998,
1997, and 1996.
Consolidated Statements of Changes in Shareholders' Equity -- Years
Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years Ended December 31, 1998,
1997 and 1996.
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.
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The following exhibits are incorporated herein by reference:*
Reg S-K
Exhibit No. Description
3(i)a Amended and Restated Certificate of Incorporation of TrustCo Bank Corp NY,
dated July 27, 1993.
3(i)b Certificate of Amendment of the Certificate of Incorporation of TrustCo
Bank Corp NY, dated May 28, 1996.
3(i)c Certificate of Amendment of the Certificate of Incorporation of TrustCo
Bank Corp NY, dated May 19, 1997.
3(ii)a Amended and Restated By-Laws of TrustCo Bank Corp NY, dated August 18,
1998.
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, Amendment No. 3 dated February 13,
1995, Amendment No. 4 dated December 1, 1995, including Schedule A, and
Amendment No. 5, dated May 1, 1997.
10(b)Employment Agreement dated June 21, 1994, Amendment No. 1 dated February
14, 1995, including Schedule A, and Amendment No. 2, dated May 1, 1997,
among TrustCo, the Bank and Robert T. Cushing.
10(c)Restated Employment Agreement dated June 21, 1994 and Amendment No. 1
dated February 14, 1995, including Schedule A, and Amendment No. 2, dated
May 1, 1997, among TrustCo, the Bank and Nancy A. McNamara.
10(d)Restated Employment Agreement dated June 21, 1994, and Amendment No. 1
dated February 14, 1995, including Schedule A, and Amendment No. 2, dated
May 1, 1997, among TrustCo, the Bank and Ralph A. Pidgeon.
10(e)Restated Employment Agreement dated June 21, 1994, and Amendment No. 1
dated February 14, 1995, including Schedule A, and Amendment No. 2, dated
May 1, 1997, among TrustCo, the Bank and William F. Terry.
10(f) Restated 1985 TrustCo Bank Corp NY Stock Option Plan.
10(g) TrustCo Bank Corp NY Directors Stock Option Plan.
10(h)Second Restatement of Trustco Bank Supplemental Retirement Plan among the
Bank and each of Robert T. Cushing, Nancy A. McNamara, Ralph A. Pidgeon,
and William F. Terry, dated March 29, 1996, and Amendment No. 1, dated
September 15, 1998.
10(i)Restated Agreement for Supplemental Retirement Benefits for Robert A.
McCormick, dated June 24, 1994, Amendment No. 1 dated December 1, 1995, and
Amendment No. 2 dated March 29, 1996, and Amendment No. 3, dated September
15, 1998.
10(j)Restatement of Trustco Bank Executive Officer Incentive Plan, dated March
29, 1996, Amendment No. 1, dated October 21, 1997, and Amendment No. 2,
dated September 15, 1998.
10(k) 1995 TrustCo Bank Corp NY Stock Option Plan.
10(l)TrustCo Bank Corp NY Performance Bonus Plan, dated May 19, 1997, and
Performance Unit Agreement Under TrustCo Bank Corp NY Performance Bonus
Plan.
10(m)TrustCo Bank Corp NY Directors Performance Bonus Plan, dated May 19, 1997,
and Performance Bonus Unit Agreement Under TrustCo Bank Corp NY Directors
Performance Bonus Plan.
11 Computation of Net Income Per Common Share.
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*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.
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The following exhibits are filed herewith:*
Reg S-K
Exhibit No. Description
13 Portions of Annual Report to Security Holders of TrustCo for
the year ended December 31, 1998.
21 List of Subsidiaries of TrustCo.
23 Independent Auditors' Consent of KPMG LLP.
24 Power of Attorney.
27 Financial Data Schedules.
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Reports on Form 8-K:
On November 17, 1998, TrustCo filed a Current Report on Form 8-K reporting the
declaration of a cash dividend.
On January 19, 1999, TrustCo filed a Current Report on Form 8-K reporting the
fourth quarter and year-end December 31, 1998, results.
On February 16, 1999, TrustCo filed a Current Report on Form 8-K reporting the
declaration of a cash dividend.
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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 19, 1999
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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 February 16, 1999
- ------------------------
Barton A. Andreoli
* Director February 16, 1999
- ------------------------
Lionel O. Barthold
* Director February 16, 1999
- ------------------------
M. Norman Brickman
* Director February 16, 1999
- ------------------------
Robert A. McCormick
* Director February 16, 1999
- ------------------------
Nancy A. McNamara
* Director February 16, 1999
- ------------------------
Dr. Anthony J. Marinello
* Director February 16, 1999
- ------------------------
Dr. John S. Morris
* Director February 16, 1999
- ------------------------
Dr. James H. Murphy
* Director February 16, 1999
- ------------------------
Richard J. Murray, Jr.
* Director February 16, 1999
- ------------------------
Kenneth C. Petersen
* Director February 16, 1999
- ------------------------
William D. Powers
* Director February 16, 1999
- ------------------------
William J. Purdy
Director February 16, 1999
William F. Terry
By: /s/ William F. Terry
*William F. Terry, as Agent
Pursuant to Power of Attorney
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Exhibits Index
Reg S-K
Item 601
Exhibit No. Exhibit Page
No.
Exhibits Index
3(i)a Amended and Restated Certificate of Incorporation of TrustCo
Bank Corp NY, dated July 27, 1993, filed as Exhibit 3(i)a to
TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the
quarter ended June 30, 1997, is incorporated herein by
reference.
3(i)b Certificate of Amendment of the Certificate of Incorporation
of TrustCo Bank Corp NY, dated May 28, 1996, filed as Exhibit
3(i)b to TrustCo Bank Corp NY's Quarterly Report on Form 10Q,
for the quarter ended June 30, 1997, is incorporated herein by
reference.
3(i)c Certificate of Amendment of the Certificate of Incorporation
of TrustCo Bank Corp NY, dated May 19, 1997, filed as Exhibit
3(i)c to TrustCo Bank Corp NY's Quarterly Report on Form 10Q,
for the quarter ended June 30, 1997, is incorporated herein by
reference.
3(ii)a Amended and Restated By-Laws of TrustCo Bank Corp NY dated
August 18, 1998, filed as Exhibit 3(ii)a to TrustCo Bank Corp
NY's Quarterly Report on Form 10Q for the quarter ended
September 30, 1998, are 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, filed as Exhibit 10(b) to TrustCo Bank Corp NY's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994, and Amendment No. 4 dated December 1, 1995, to the
Employment Agreement dated January 1, 1992, filed as Exhibit
10(b) and Schedule A filed as Exhibit 10(c) to TrustCo Bank
Corp NY's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, and Amendment No. 5, dated May 1,
1997, filed as Exhibit 10(e) to TrustCo Bank Corp NY's
Quarterly Report on Form 10Q for the quarter ended June 30,
1997 are incorporated herein by reference.
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Reg S-K
Item 601
Exhibit No. Exhibit Page
No.
Exhibits Index
10(b) 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 for the fiscal year ended December
31, 1994, and Schedule A updating the Employment Agreement
dated June 21, 1994, filed as Exhibit 10(e) to TrustCo Bank
Corp NY's Annual Report on Form 10-K, for the year ended
December 31, 1995, and Amendment No. 2, dated May 1, 1997,
filed as Exhibit 10(f) to TrustCo Bank Corp NY's Quarterly
Report on Form 10Q for the quarter ended June 30, 1997, are
incorporated herein by reference.
10(c) 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 for the fiscal year
ended December 31, 1994, and Schedule A updating the
Employment Agreement dated June 21, 1994, filed as Exhibit
10(i) to TrustCo Bank Corp NY's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, and Amendment No. 2,
dated May 1, 1997, filed as Exhibit 10(f) to TrustCo Bank Corp
NY's Quarterly Report on Form 10Q for the quarter ended June
30, 1997, are incorporated herein by reference.
10(d) 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 for the fiscal year
ended December 31, 1994, and Schedule A updating the
Employment Agreement dated June 21, 1994, filed as Exhibit
10(i) to TrustCo Bank Corp NY's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, and Amendment No. 2
dated May 1, 1997, filed as Exhibit 10(f) to TrustCo Bank Corp
NY's Quarterly Report on Form 10Q for the quarter ended June
30, 1997, are incorporated herein by reference.
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Reg S-K
Item 601
Exhibit No. Exhibit Page
Exhibits Index
10(e) 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 for the fiscal year
ended December 31, 1994, and Schedule A updating the
Employment Agreement dated June 21, 1994, filed as Exhibit
10(i) to TrustCo Bank Corp NY's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, and Amendment No. 2
dated May 1, 1997, filed as Exhibit 10(f) to TrustCo Bank Corp
NY's Quarterly Report on Form 10Q for the quarter ended June
30, 1997, are incorporated herein by reference.
10(f) 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 for
the fiscal year ended December 31, 1994, is incorporated herein
by reference.
10(g) 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 for the fiscal year ended December 31, 1993, is incorporated
herein by reference.
10(h) Second Restatement of Trustco Bank Supplemental Retirement
Plan among the Bank and each of Robert T. Cushing, Nancy A.
McNamara, Ralph A. Pidgeon, and William F. Terry, dated March
29, 1996, filed as Exhibit 10(m) to TrustCo Bank Corp NY's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996, and Amendment No. 1, dated September 15, 1998, filed
as Exhibit 10(a) to TrustCo Bank Corp NY's Quarterly Report on
form 10Q for the quarter ended September 30, 1998, are
incorporated herein by reference.
17
17
<PAGE>
Reg S-K
Item 601
Exhibit No. Exhibit Page
Exhibits Index
10(i) Restated Agreement for Supplemental Retirement Benefits for
Robert A. McCormick, dated June 24, 1994 and Amendment No. 1
dated December 1, 1995, filed as Exhibit 10(m) to TrustCo Bank
Corp NY's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and Amendment No. 2, dated March 29, 1996,
filed as Exhibit 10(l) to TrustCo Bank Corp NY's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, and
Amendment No. 3, dated September 15, 1998, filed as Exhibit 10(c)
to TrustCo Bank Corp NY's Quarterly Report on Form 10Q for the
quarter ended September 30, 1998, are incorporated herein by
reference.
10(j) Restatement of Trustco Bank Executive Officer Incentive Plan,
dated March 29, 1996, filed as Exhibit 10(n) to TrustCo Bank Corp
NY's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, Amendment No. 1, to Restatement of Trustco
Bank Executive Officer Incentive Plan, dated October 21, 1997,
filed as Exhibit 10(n) to TrustCo Bank Corp NY's Annual Report on
Form 10K for the fiscal year ended December 31, 1997, and
Amendment No. 2, dated September 15, 1998, filed as Exhibit 10(b)
to TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the
quarter ended September 30, 1998, are incorporated herein by
reference.
10(k) 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.
10(l) Trustco Bank Corp NY Performance Bonus Plan, dated May 19,
1997, filed as Exhibit 10(a) and Performance Bonus Unit Agreement
Under Trustco Bank Corp NY Performance Bonus Plan, filed as
Exibit 10(b) to Trustco Bank Corp NY's Quarterly Report on Form
10Q for the quarter ended June 30, 1997, are incorporated herein
by reference.
10(m) Trustco Bank Corp NY Directors Performance Bonus Plan,
dated May 19, 1997, filed as Exhibit 10(c) and Performance Bonus
Unit Agreement Under Trustco Bank Corp NY Directors Performance
Bonus Plan, filed as Exibit 10(d) to Trustco Bank Corp NY's
Quarterly Report on Form 10Q for the quarter ended June 30, 1997,
are incorporated herein by reference.
18
18
<PAGE>
Reg S-K
Item 601
Exhibit No. Exhibit Page
Exhibits Index
11 Computation of Net Income Per Common Share. Note 10 on 62
page 42 of TrustCo's Annual Report to Shareholders for the year
ended December 31, 1998, is incorporated herein by reference.
13 Portions of Annual Report to Security Holders of TrustCo for the 20
year ended December 31, 1998, are filed herewith.
GRAPHICS APPENDIX
Cross
Reference
To Page
Of Annual
Omitted Charts Report
1 Return on Equity 6
2 Taxable Equivalent Net Interest
Income 7
3 Dividends Per Share 15
4 Allowance for Loan Losses 17
5 Allowance to Loans
Outstanding 17
6 Efficiency Ratio 21
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.
Exhibits Index
21 List of Subsidiaries of TrustCo, filed herewith 71
23 Independent Auditor's Consent of KPMG, LLP,
filed herewith. 72
24 Power of Attorney, filed herewith. 73
27 Financial Data Schedules, filed herewith. 74
19
19
<PAGE>
Exibit 13:Annual Report to Shareholders
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, Trustco Bank, National Association, operates 53 community
banking offices offering 36 drive-up windows and 33 Automatic Teller Machines,
throughout the Bank's market area. The Bank serves 9 counties with a broad range
of community banking services.
<TABLE>
Financial Highlights
<CAPTION>
(dollars in thousands, except per share data) Years ended December 31,
Percent
1998 1997 Change
Income:
<S> <C> <C> <C>
Net interest income (TE)........................................ $ 89,117 88,685 0.49%
Net income...................................................... 35,015 32,175 8.83
Per Share (1):
Basic earnings.................................................. 1.31 1.19 10.08
Diluted earnings................................................ 1.25 1.15 8.70
Book value...................................................... 6.94 6.64 4.52
Average Balances:
Assets.......................................................... 2,433,238 2,302,598 5.67
Loans, net...................................................... 1,311,967 1,260,771 4.06
Deposits........................................................ 2,068,725 1,981,223 4.42
Shareholders' equity............................................ 180,103 167,273 7.67
Financial Ratios:
Return on average assets........................................ 1.44% 1.40 2.86
Return on average equity (2).................................... 21.47 20.23 6.13
Tier 1 capital to:
Total average assets (leverage)............................... 6.89 7.00 (1.57)
Risk-adjusted assets.......................................... 12.78 13.43 (4.84)
Total capital to risk-adjusted assets............................. 14.06 14.72 (4.48)
Net loans charged off to average loans............................ .28 .28 --
Allowance for loan losses as a coverage of nonperforming loans.... 4.4x 5.0x (12.00)
Efficiency ratio.................................................. 40.26 40.61 0.86
Dividend payout ratio............................................. 75.97 72.34 5.02
</TABLE>
<TABLE>
Per share information of common stock (1)
<CAPTION>
Range of Stock
Basic Diluted Cash Book Price
Earnings Earnings Dividend Value High Low
1997
<S> <C> <C> <C> <C> <C> <C>
First quarter.............................$ .28 .27 .21 5.98 16.82 15.50
Second quarter............................ .29 .28 .21 6.26 16.26 15.12
Third quarter............................. .31 .30 .21 6.51 21.55 15.60
Fourth quarter............................ .31 .29 .24 6.64 25.22 19.24
1998
First quarter............................. .31 .30 .24 6.86 25.76 21.20
Second quarter............................ .32 .31 .24 6.86 25.98 22.39
Third quarter............................. .34 .33 .24 6.93 27.17 21.63
Fourth quarter............................ .33 .31 .28 6.94 30.00 22.83
(1) Adjusted for a 15% stock split in 1998 and 1997.
(2) Excludes the market adjustment on securities available for sale.
</TABLE>
20
<PAGE>
Table of Contents
Financial Highlights.......................................................... 1
Executive and Senior Officers
of Trustco Bank............................................................... 3
President's Message........................................................... 4
Management's Discussion and Analysis
of Financial Condition and Results of Operations.............................. 6
Average Balances, Yields
and Net Interest Margins..................................................... 12
Glossary of Terms............................................................ 27
Management's Statement of Responsibilities................................... 28
Independent Auditors' Report................................................. 29
Consolidated Financial Statements and Notes.................................. 30
Officers and Board of Directors.............................................. 45
Officers..................................................................... 46
Branch Locations..............................................................47
General Information.......................................................... 48
TrustCo Mission Statement:
TrustCo will be the low cost provider of high quality services to our customers
in the communities we serve and return to our owners an above average return on
their investment.
21
<PAGE>
Executive and Senior Officers of Trustco Bank
Executive Officers: From Left to Right: William F. Terry, Senior Vice President
& Secretary, Bank Operations, Legal Counsel, Purchasing, and Trust Operations;
Nancy A. McNamara, Senior Vice President, Loan Division, Trust Department,
Marketing, and Community Relations; Robert A. McCormick, President & Chief
Executive Officer; Ralph A. Pidgeon, Senior Vice President, Branches,
Installment Loans/Credit Cards, Retirement/Government Accounts, and Compliance;
Robert T. Cushing, Senior Vice President and Chief Financial Officer,
Accounting/Finance, Data Processing, and Premises.
Senior Officers: Standing Left to Right: George W. Wickswat, Vice President,
Commercial Loans; James Niland, Vice President, Trust Department; Jeffrey S.
Farbaniec, Vice President, Accounting/Finance; Linda C. Christensen, Vice
President, Accounting/Finance; Kevin M. Curley, Vice President, Branch
Administration; Daniel R. Saullo, Vice President, Mortgage Loans; Robert J.
McCormick, Administrative Vice President, Commercial/Mortgage Loans; Scot R.
Salvadore, Vice President, Branch Administration; William M. McCartan, Vice
President, Trust Department. Seated Left to Right: Cheri J. Parvis, Vice
President, Human Resources; John C. Fay, Auditor; Robert Scribner, Vice
President, Trust Department; Donald J. Csaposs, Vice President, Compliance;
Henry C. Collins, Administrative Vice President, Legal Counsel; Michael R.
Bonesteel, Vice President, Data Processing; James D. McLoughlin, Administrative
Vice President, Bank Operations; Ann M. Noble, Vice President, Bank Operations.
22
<PAGE>
President's Message
Dear Shareholder:
1998 was another record year at TrustCo. Our industry had a very
successful year, and TrustCo was no exception, posting results that are
competitive by any standards. We are grateful to our employees and Board of
Directors for their support and enthusiasm, ensuring our continuing strong
performance.
During 1998, shareholder values continued in the right direction with
net income at $35.0 million, up a significant 8.8% over 1997. TrustCo's most
important ratio, return on shareholders' equity, was 21.47%, up from 20.23% in
1997. We are committed to ensuring that our return on equity compares favorably
in any peer group, and we are comfortable that it does. TrustCo's five year ROE
was 19.16% and we plan an increase to 22% for the current fiscal year.
During 1998, we issued a 15% stock split maintaining the cash dividend
level on the newly issued shares, effectively increasing dividend income for
TrustCo owners by 15%. The quarterly cash dividend has increased at a 17%
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.
TrustCo's branch expansion program continues. We opened two additional
branches during 1998. 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 1998, we evaluated a number of acquisition opportunities.
Unfortunately, we 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. It is interesting to note during 1998 two of our
strongest competitors, Albank and Evergreen, were acquired by out of state
banking companies.
1998 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.
No report would be complete without a status update on Y2K. Our Company
was at it very early in the game. All critical systems have been modified,
tested, and put into production. We will complete the third party interface
testing in the first quarter of 1999, and continue testing and monitoring of the
entire Y2K system changes throughout 1999. There is nothing that we can define
as beneficial that we have not addressed.
1999 will provide income and growth success with emphasis continuing on
the home equity loan, home equity credit line, and first mortgage products; and
our improved interest bearing checking, savings, and free checking accounts on
the deposit side.
Our Trust department, which currently manages assets in excess of $1.2
billion, has ambitious expectations and continues moving forward strongly with
gross income up 6.4% in 1998.
The future should benefit from the solid performance of the superb
employee team here at TrustCo. For 1998 the often quoted efficiency ratio for
our Company was 40.26% 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.
23
<PAGE>
President's Message (continued)
1998 was a year in which average assets of $2.4 billion grew by $130.6
million, an increase of 5.7%, 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 1998, increasing on
average by 4.1%, 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 grew to $54.4 million. It is important to note that during 1998 our
residential portfolio grew $89 million, or 10.5%.
Community needs have expanded and TrustCo has responded appropriately.
TrustCo has provided employee and management participation in charitable and
community organizations, and increased its corporate charitable contributions
throughout the Capital District.
TrustCo continues to receive solid external comment. During 1998 we again
received favorable mention in America's Finest Companies as one of forty of the
16,000 U.S. companies which have delivered higher earnings per share for at
least 20 consecutive years.
From time to time it is nice to look at a longer term perspective. A look
at our cover should define clearly the significant benefits of TrustCo ownership
over the last 15 years. 1998 was another great year for the shareholders with
TrustCo's total return at 31.68%, which beat the S&P 500 and the Dow Industrial
Average. And, during the course of the year, TrustCo was included in the S&P
SmallCap 600 Index.
During 1998 we had three additions to our senior staff with the
appointments to Vice President of Kevin Curley, Cheri Parvis, and Dan Saullo.
We are enthusiastic about TrustCo's future. It is our intention at every
level of 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 in the
marketplace almost immediately.
We expect 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
24
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results 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") and its operating subsidiary Trustco Realty Corp. during 1998 and, in
summary form, the two preceding 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 1998 should be read in conjunction with this review. Certain amounts in
years prior to 1998 have been reclassified to conform with the 1998
presentation.
All per share information has been adjusted for the 15% stocksplit in 1998.
Overview
TrustCo recorded net income of $35.0 million or $1.25 of diluted earnings
per share for the year ended December 31, 1998, compared to $32.2 million or
$1.15 per share for the year 1997. This represents an increase of 8.8% in net
income between 1998 and 1997.
Significant contributors to the increase in net
income for 1998 were as follows:
* an increase of $134.1 million in the average balance of interest earning
assets between 1997 and 1998,
* a 14.7% increase in the average balance of noninterest bearing demand
deposits to $138.8 million,
* securities transactions resulted in a net gain of $1.0 million in 1998
compared to net losses from securities transactions of $200 thousand
in 1997, and
* an increase of $3.7 million in noninterest income, excluding securities
transactions, in 1998.
<TABLE>
Return on Equity
(CHART OMITTED)
<CAPTION>
<S> <C>
1996 19.05%
1997 20.23%
1998 21.47%
</TABLE>
During 1998 the following also had a significant effect on net income:
a reduction in the net interest margin to 3.81% in 1998 from 4.02% in 1997, and
a increase of $2.5 million in noninterest expense to $48.8 million in 1998.
<TABLE>
MIX OF AVERAGE EARNING ASSETS
(dollars in thousands)
<CAPTION>
Components of
98-97 97-96 Total Earning Assets
1998 1997 1996 Change Change 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income.........$1,311,967 1,260,771 1,227,407 51,196 33,364 56.1% 57.2 57.4
Securities available for sale:
U.S. Treasuries and agencies......... 204,694 352,301 409,590 (147,607) (57,289) 8.7 16.0 19.2
States and political subdivisions.... 112,077 102,206 78,921 9,871 23,285 4.8 4.6 3.7
Mortgage-backed securities........... 186,239 134,509 53,844 51,730 80,665 8.0 6.1 2.5
Other................................ 108,947 33,985 38,564 74,962 (4,579) 4.7 1.5 1.8
-----------------------------------------------------------------------------
Total securities available for sale.. 611,957 623,001 580,919 (11,044) 42,082 26.2 28.2 27.2
-----------------------------------------------------------------------------
Federal funds sold.................... 414,162 320,953 328,500 93,209 (7,547) 17.7 14.6 15.4
Other short-term investments.......... 752 -- -- 752 -- -- -- --
-----------------------------------------------------------------------------
Total earning assets..................$2,338,838 2,204,725 2,136,826 134,113 67,899 100.0% 100.0 100.0
-----------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Management's Discussion and Analysis (continued)
TrustCo has performed well with respect to a number of key performance ratios
during 1998 and 1997 including
* return on equity of 21.47%for 1998 and 20.23% for 1997,
* return on assets of 1.44% for 1998 and 1.40% for 1997, and
* operating efficiency ratio of 40.26% for 1998 and 40.61% for 1997.
Asset/Liability Management
In managing its balance sheet portfolios, TrustCo utilizes funding and
capital sources within sound credit, investment, interest rate and liquidity
risk guidelines. Loans and securities (including federal funds sold) are the
Company's primary earning assets. Average interest earning assets were 96.1% and
95.7% of average total assets for 1998 and 1997, respectively.
TrustCo, through its management of liabilities, attempts to provide stable
and flexible sources of funding within established liquidity and interest rate
risk guidelines. This is accomplished through core deposit banking products
offered within the markets served by the Company. TrustCo does not actively seek
to attract out-of-area deposits or so called hot money; rather the Company
focuses on the value of core relationships both with depositors and borrowers.
TrustCo's objectives in managing its balance sheet are to limit the
sensitivity of net interest income 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 is deliberate in its
effort to maintain adequate liquidity under prevailing and projected economic
conditions, and to maintain an efficient and appropriate mix of core deposit
relationships.
The Company relies on traditional banking investment instruments and its
large base of core deposits to help in asset/liability management.
Earning Assets
Average earning assets during 1998 were $2.3 billion, which was an increase
of $134.1 million or 6.1% over the prior year. The increase in the average
balance of earning assets was a result of growth in the average balance of loans
and federal funds sold, which increased $51.2 million and $93.2 million
respectively. These increases were offset by an $11.0 million reduction in the
average balance of securities available for sale.
Total average assets were $2.4 billion for 1998 and $2.3 billion for 1997.
The table "Mix of Average Earning Assets," shows how the mix of the earning
assets has changed over the last three years. While the growth in earning assets
is critical to improved profitability, changes in the mix can also have a
significant impact on income levels.
<TABLE>
Tax Equivalent Net Interest Income
(CHART OMITTED)
<CAPTION>
<S> <C>
1996 $87.0
1997 $88.7
1998 $89.1
</TABLE>
Loans: Average total loans increased $51.2 million, or 4.1%, during 1998.
Interest income on the loan portfolio increased to $111.0 million in 1998 from
<TABLE>
Loan portfolio
(dollars in thousands) Average Balances
<CAPTION>
1998 1997 1996 1995 1994
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential..................$ 937,094 71.4% 848,105 67.2% 783,094 63.7% 714,804 60.1% 652,837 58.0%
Commercial................... 189,542 14.4 204,502 16.2 224,949 18.3 237,165 19.9 237,994 21.2
Home equity line of credit... 158,939 12.1 178,597 14.1 187,652 15.3 202,647 17.0 203,756 18.1
Installment.................. 27,530 2.1 30,931 2.5 33,299 2.7 35,269 3.0 30,242 2.7
Total loans.................. 1,313,105 100.0% 1,262,135 100.0% 1,228,994 100.0% 1,189,885 100.0% 1,124,829 100.0%
----------------------------------------------------------------------------------------
Less:Unearned income 1,138 1,364 1,587 1,956 2,131
Allowance for loan losses 55,208 53,173 51,233 45,086 37,334
----------------------------------------------------------------------------------------
Net loans....................$1,256,759 1,207,598 1,176,174 1,142,843 1,085,364
----------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
Management's Discussion and Analysis (continued)
$109.7 million in 1997. The average yield decreased to 8.46% in 1998, from
8.70% in 1997.
The steady growth of the loan portfolio as a component of the Company's
assets contributed significantly to the superior earnings results for 1998.
TrustCo has distinguished itself in the Upstate New York region as one of the
principal originators of residential real estate mortgage loans. Through
aggressive marketing and pricing and a customer-friendly service delivery
network, TrustCo has increased the average balance of the residential real
estate loan portfolio to $937.1 million, an increase of $89.0 million, or 10.5%.
Income on residential real estate loans increased to $75.5 million in 1998 from
$69.8 million in 1997. The yield on this loan portfolio decreased slightly to
8.05% for 1998 from 8.23% in 1997.
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 is considered a benefit for both marketing
and collection purposes. During 1998, management continued its established
practice of retaining all new loan originations in the Bank's portfolio rather
than selling them into the secondary market. This practice positions TrustCo to
be able to respond quickly to customer and market needs by allowing TrustCo and
the customers to deal on a one to one basis to resolve conflicts and to meet
individual needs. This practice also allows TrustCo to respond quickly to
changes in interest rates or closing costs by competitors. The overall effect is
that TrustCo is able to develop long term business relations with customers and
meet their needs quickly.
Average commercial loans decreased to $189.5 million in 1998 from $204.5
million in 1997. The average yield on the commercial loan portfolio also
decreased to 9.40% for 1998 compared to 9.47% for 1997. This has resulted in
income on commercial loans of $17.8 million in 1998 and $19.4 million in 1997.
TrustCo strives to maintain strong asset quality in all aspects of its loan
portfolio, especially with respect to commercial loans. Competition for
commercial loans is very intense in the Bank's market region. The Bank competes
with large money center and regional banks as well as with smaller locally based
banks and thrifts. Over the last several years competition for commercial loans
has intensified as smaller banks and thrifts have tried to develop commercial
loan portfolios. To do this, some are reducing interest rates and underwriting
standards. Rather than reduce desired loan interest rates or negatively affect
asset quality by changing the underwriting standards, the Bank has decided to
forego the potentially higher volume of new loan originations in order to
maintain a stronger quality commercial loan portfolio.
TrustCo's commercial lending activities are focused on balancing the
Company's commitment to meeting the credit needs of businesses in its market
area with the necessity of maintaining a high quality loan portfolio. In
accordance with these goals the Company has consistently emphasized the
origination of loans within its market area. The portfolio contains no foreign
loans, nor does it contain any significant concentrations of credit extended to
any single borrower or industry. The Bank's commercial loan portfolio reflects
the diversity of business found in the Capital Region's economy. Light
manufacturing, retail, service and real estate related business are a few
examples of the types of business located in the Bank's marketing region.
TrustCo has a long-standing leadership position in the home equity credit
line product in its market territory. TrustCo was one of the first financial
institutions in the Upstate New York region to aggressively market and originate
this product, and has developed significant expertise with respect to its risks
and rewards. During 1998 the average balance of home equity credit lines was
$158.9 million, down from $178.6 million in 1997. The home equity credit line
product has developed a significant business line for virtually all financial
services companies. The Bank competes with both regional and national concerns
for these lines of credit and faces stiff competition with respect to interest
rates, closing costs and service for these loans. TrustCo continuously reviews
changes made by competitors with respect to the home equity credit line products
and adjusts, where needed, the Bank's offerings so as to remain competitive for
this product. The average yield decreased to 9.02% for 1998 from 9.34% in 1997.
These decreases resulted in interest income on home equity credit lines of $14.3
million in 1998, compared to $16.7 million in 1997.
The average balance of installment loans, net of unearned income, decreased
to $26.4 million in 1998 from $29.6 million in 1997. The yield on installment
loans decreased 18 basis points to 12.68% in 1998, resulting in interest income
of $3.3 million. This portfolio continues to decrease because many consumers
have shifted their borrowing patterns from direct installment credit to home
equity loan products which may provide an income tax benefit.
27
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
(dollars in thousands)
<CAPTION>
December 31, 1998
After 1 Year
In 1 Year But Within After
or Less 5 Years 5 Years Total
<S> <C> <C> <C> <C>
Commercial $117,670 54,798 14,840 187,308
Real estate construction 12,782 -- -- 12,782
-------------------------------------------
Total $130,452 54,798 14,840 200,090
-------------------------------------------
Predetermined rates....... $ 49,618 52,901 14,840 117,359
Floating rates............ 80,834 1,897 -- 82,731
-------------------------------------------
Total..................... $130,452 54,798 14,840 200,090
-------------------------------------------
</TABLE>
Securities available forsale: The portfolio of securities available for sale was
actively managed by the Company to take full advantage of changes in interest
rates. Securities available for sale are used primarily for liquidity purposes
while simultaneously producing earnings, and are managed under a policy
detailing the types, duration and interest rates acceptable in the portfolio.
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. However, these securities would be available for sale in response to
changes in market interest rates, related changes in prepayment risk, needs for
liquidity, or changes in the availability of and yield on alternative
investments.
At December 31, 1998, securities available for sale amounted to $717.4
million, compared to $601.9 million at year end 1997. For 1998, the average
balance of securities available for sale was $612.0 million with an average
yield of 7.18%, compared to an average balance in 1997 of $623.0 million with an
average yield of 7.67%. During 1998, market interest rates on investment
securities were at historical lows. This created a situation wherein
reinvestment opportunities were generally at lower interest rates than for
maturing securities. The impact was the reduction in the overall yield on the
securities portfolio during 1998 compared to 1997.
The taxable equivalent income earned on the securities portfolio in 1998
was $43.9 million, compared to $47.8 million earned in 1997. The average balance
of the securities portfolio decreased by $11.0 million between 1997 and 1998,
and the average yield on the portfolio decreased by 49 basis points during the
same time period.
During 1998, TrustCo recognized approximately $1 million of net gains from
securities transactions, compared to $200 thousand of net losses in 1997.
Throughout 1998, TrustCo sold securities to provide liquidity for potential
reinvestment at higher interest rates. This created additional liquidity and
eliminated lower yielding assets from the securities portfolio. At year end
1998, TrustCo continued to have significant liquidity in the form of $358.0
million of federal funds sold and $25.0 million of other short-term investments.
Management believes that the Company will have the opportunity to reinvest these
funds in the securities or loan portfolios as enhanced opportunities develop in
1999.
TrustCo does not invest in any exotic investment products such as interest
rate swaps, forward placement contracts, options or other instruments commonly
referred to as derivatives. By actively managing a portfolio of high quality
securities, TrustCo can meet the objectives of asset/liability management and
liquidity, 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. Average balances of securities available for sale are
stated at amortized cost. At December 31, 1998 and 1997, the market value of
TrustCo's portfolio of securities available for sale produced net unrealized
gains of approximately $31.5 million and $26.8 million, respectively.
During 1998, the Bank invested in short-term asset-backed securities as a
means of supplementing the income from other short-term investments.
28
<PAGE>
Management's Discussion and Analysis (continued)
These bonds are all secured by underlying real estate type assets and are AAA
rated credits. These securities are classified as other securities for the
following analysis.
<TABLE>
Securities available for sale
(dollars in thousands) As of December 31,
<CAPTION>
1998 1997 1996
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and agencies.................. $163,244 167,825 273,517 278,823 404,885 406,933
States and political subdivisions............. 124,390 129,745 109,210 113,787 94,954 96,918
Mortgage-backed securities.................... 246,531 249,489 151,989 155,080 75,492 76,493
Other......................................... 126,183 126,348 15,430 15,451 4,276 4,276
--------------------------------------------------------------
Total debt securities available for sale.. 660,348 673,407 550,146 563,141 579,607 584,620
Equity securities............................. 25,610 44,003 24,955 38,758 30,139 34,050
--------------------------------------------------------------
Total securities available for sale....... $685,958 717,410 575,101 601,899 609,746 618,670
--------------------------------------------------------------
</TABLE>
The table "Securities Portfolio Maturity Distribution and Yield,"
distributes the securities available for sale portfolio as of December 31, 1998
based on the final maturity of the securities. Mortgage-backed, asset-backed,
and collateralized mortgage obligation securities are stated using estimated
average life, and equity securities are excluded. Actual maturities may differ
from contractual maturities because of securities prepayments and the right of
certain issuers to call or prepay their obligations without penalty.
<TABLE>
SECURITIES PORTFOLIO MATURITY DISTRIBUTION AND YIELD
Debt securities available for sale:
<CAPTION>
(dollars in thousands)
As of December 31, 1998
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
<S> <C> <C> <C> <C> <C>
Amortized cost......................$20,035 10 115,417 27,782 163,244
Market value........................ 20,233 10 119,240 28,342 167,825
Weighted average rate............... 6.60% 5.38 7.39 8.22 7.43
States and political subdivisions
Amortized cost......................$ 8,323 7,608 5,492 102,967 124,390
Market value........................ 8,427 7,867 5,730 107,721 129,745
Weighted average rate............... 7.59% 8.05 7.96 8.16 8.11
Mortgage-backed securities
Amortized cost......................$ -- 160,172 79,979 6,380 246,531
Market value........................ -- 162,354 80,785 6,350 249,489
Weighted average rate............... -- 6.79 6.58 6.42 6.71
Other
Amortized cost..........................$18,393 107,790 -- -- 126,183
Market value............................ 18,386 107,962 -- -- 126,348
Weighted average rate................... 6.21% 6.23 -- -- 6.23
------------------------------------------------
Total debt securities available for sale
Amortized cost.........................$46,751 275,580 200,888 137,129 660,348
Market value........................... 47,046 278,193 205,755 142,413 673,407
Weighted average rate.................. 6.62% 6.61 7.08 8.09 7.05
</TABLE>
29
<PAGE>
Management's Discussion and Analysis (continued)
Maturity and call dates of securities: Many of the securities in the investment
portfolio have a call date in addition to the stated maturity date. Call dates
allow the issuer of the bond to redeem the bond prior to maturity at specified
dates and at predetermined prices. Normally, securities are redeemed at the
call date when the issuer can reissue the bond at a lower rate. Therefore, for
cash flow, liquidity and interest rate management purposes, it is important to
monitor both maturity dates and call dates. The following table details the
portfolio of securities available for sale, by both maturity date and call date
as of December 31, 1998. Mortgage-backed, asset-backed, and collateralized
mortgage obligation securities are reported using an estimate of average life;
equity securities are excluded.
<TABLE>
SECURITIES PORTFOLIO MATURITY AND CALL DATE DISTRIBUTION
Debt securities available for sale:
<CAPTION>
(dollars in thousands) As of December 31, 1998
Based on Based on
Final Maturity Call Date
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C> <C>
Within 1 year......................................$ 46,751 47,046 132,611 133,877
1 to 5 years....................................... 275,580 278,193 335,792 340,680
5 to 10 years...................................... 200,888 205,755 170,451 176,935
After 10 years..................................... 137,129 142,413 21,494 21,915
--------------------------------------
Total debt securities available for sale.......$660,348 673,407 660,348 673,407
--------------------------------------
</TABLE>
Federal Funds Sold: During 1998, the average balance of federal funds sold was
$414.2 million, a $93.2 million increase from $321.0 million in 1997. The
average rate earned on these assets was 5.44% in 1998 and 5.53% in 1997. TrustCo
utilized this category of earning assets as a means of maintaining strong
liquidity as interest rates changed. Rather than invest the excess liquidity
during 1998, the Company chose to place these funds in overnight federal funds
sold. This decision had the short term effect of suppressing earnings for 1998,
but positioned TrustCo to take advantage of other banking opportunities as they
emerge in 1999.
The decrease in average yield during 1998 was primarily the result of a 75
basis point decrease in the target federal funds rate set by the Federal Reserve
Bank during 1998. All of the decreases made by the Federal Reserve Bank in the
target federal funds rate were made in the second half of 1998, therefore the
yield earned on this asset for 1999 can be expected to be less than that earned
in 1998. The target federal funds rate at year end 1998 was 4.75%.
Other Short Term Investments: During 1998, the Company purchased $25 million of
federal agency discount bonds to supplement the yield on federal funds. The
bonds matured shortly after year end 1998 and carried a yield of approximately
40 basis points higher than the target rate on federal funds.
30
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
AVERAGE BALANCES, YIELDS AND NET INTEREST MARGINS
<CAPTION>
(dollars in thousands)
1998 1997 1996
Interest Interest Interest
Average Income/Average Average Income/Average Average Income/Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $1,311,967 110,952 8.46% 1,260,771 109,690 8.70% 1,227,407 107,517 8.76%
---------------------------------------------------------------------------------
Securities available for sale:
U.S. Treasuries and agencies........ 204,694 15,408 7.53 352,301 27,436 7.79 409,590 31,647 7.73
States and political subdivisions... 112,077 9,056 8.08 102,206 8,249 8.07 78,921 6,235 7.90
Mortgage-backed securities.......... 186,239 12,692 6.81 134,509 10,094 7.50 53,844 4,114 7.64
Other............................... 108,947 6,781 6.22 33,985 1,975 5.81 38,564 2,202 5.71
---------------------------------------------------------------------------------
Total securities available for sale. 611,957 43,937 7.18 623,001 47,754 7.67 580,919 44,198 7.61
---------------------------------------------------------------------------------
Federal funds sold...................... 414,162 22,536 5.44 320,953 17,761 5.53 328,500 17,634 5.37
Other short-term investments........... 752 39 5.17 -- -- -- -- -- --
---------------------------------------------------------------------------------
Total interest earning assets....... 2,338,838 177,464 7.59% 2,204,725 175,205 7.95% 2,136,826 169,349 7.93%
---------------------------------------------------------------------------------
Allowance for loan losses.............. (55,208) (53,173) (51,233)
Cash and noninterest earning assets..... 149,608 151,046 134,942
---------------------------------------------------------------------------------
Total assets........................ $2,433,238 2,302,598 2,220,535
---------------------------------------------------------------------------------
Liabilities and shareholders' equity
Interest bearing deposits:
Interest bearing checking accounts... $243,888 3,585 1.47% 233,644 3,596 1.54% 233,340 3,591 1.54%
Savings.............................. 657,793 20,382 3.10 658,750 22,622 3.43 667,447 23,012 3.45
Time deposits and money markets....... 1,028,258 57,629 5.60 967,864 54,728 5.65 923,082 51,146 5.54
---------------------------------------------------------------------------------
Total interest bearing deposits....... 1,929,939 81,596 4.23 1,860,258 80,946 4.35 1,823,869 77,749 4.26
---------------------------------------------------------------------------------
Short-term borrowings.................. 143,337 6,751 4.71 117,184 5,574 4.76 98,324 4,593 4.67
---------------------------------------------------------------------------------
Total interest bearing liabilities.... 2,073,276 88,347 4.26% 1,977,442 86,520 4.38% 1,922,193 82,342 4.28%
---------------------------------------------------------------------------------
Demand deposits........................ 138,786 120,965 112,576
Other liabilities...................... 41,073 36,918 29,839
Shareholders' equity................... 180,103 167,273 155,927
---------------------------------------------------------------------------------
Total liabilities and shareholders'equity $2,433,238 2,302,598 2,220,535
---------------------------------------------------------------------------------
Net interest income..................... 89,117 88,685 87,007
---------------------------------------------------------------------------------
Net interest spread..................... 3.33% 3.57% 3.65%
---------------------------------------------------------------------------------
Net interest margin (net interest income
to total interest earning assets)....... 3.81 4.02 4.07
---------------------------------------------------------------------------------
</TABLE>
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% and 9.0%, respectively, for 1998 and 1997, and 35.0%
and 9.23%, respectively, for 1996. The average balances of securities available
for sale were calculated using amortized costs for these securities. Included in
the balance of shareholders' equity is $17.0 million, $8.2 million, and $5.3
million in 1998, 1997, and 1996, respectively, of unrealized appreciation, net
of tax, in the available for sale securities portfolio. Nonaccrual loans are
included in average loans.
31
<PAGE>
Management's Discussion and Analysis (continued)
Funding Sources
TrustCo utilizes various traditional sources of funds to support its asset
portfolio. The following table, "Mix of Average Sources of Funding," presents
the various categories of funds used and the corresponding average balances for
each of the last three years.
<TABLE>
Mix of Average Sources of Funding
<CAPTION>
(dollars in thousands)
Components of
98-97 97-96 Total Funding
1998 1997 1996 Change Change 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 138,786 120,965 112,576 17,821 8,389 6.3% 5.8 5.5
Retail deposits:
Savings................................$ 657,793 658,750 667,447 (957) (8,697) 29.7 31.4 32.8
Time deposits under $100 thousand...... 841,915 806,866 768,240 35,049 38,626 38.1 38.5 37.8
Interest bearing checking accounts..... 243,888 233,644 233,340 10,244 304 11.0 11.1 11.5
Money market deposits.................. 56,754 59,707 68,130 (2,953) (8,423) 2.6 2.8 3.3
-----------------------------------------------------------------
Total retail deposits..................1,800,350 1,758,967 1,737,157 41,383 21,810 81.4 83.8 85.4
-----------------------------------------------------------------
Total core deposits....................1,939,136 1,879,932 1,849,733 59,204 30,199 87.7 89.6 90.9
-----------------------------------------------------------------
Time deposits over $100 thousand....... 129,589 101,291 86,712 28,298 14,579 5.8 4.8 4.3
Short-term borrowings........... ...... 143,337 117,184 98,324 26,153 18,860 6.5 5.6 4.8
-----------------------------------------------------------------
Total purchased liabilities............ 272,926 218,475 185,036 54,451 33,439 12.3 10.4 9.1
-----------------------------------------------------------------
Total sources of funding...............2,212,062 2,098,407 2,034,769 113,655 63,638 100.0%100.0 100.0
-----------------------------------------------------------------
</TABLE>
<TABLE>
Average Deposits by Type of Depositor
<CAPTION>
(dollars in thousands) Years Ended December 31,
<S> <C> <C> <C> <C> <C>
Individuals, partnerships and corporations............. $2,009,296 1,924,606 1,880,798 1,802,455 1,752,163
U.S. Government........................................ 100 62 45 261 542
States and political subdivisions...................... 45,715 44,839 44,555 46,091 44,289
Other (certified and official checks, etc.)............ 13,614 11,716 11,047 10,263 11,342
------------------------------------------------------
Total average deposits by type of depositor........ $2,068,725 1,981,223 1,936,445 1,859,070 1,808,336
------------------------------------------------------
</TABLE>
Deposits: Average total deposits (including time deposits greater than $100
thousand) were $2.07 billion in 1998 compared to $1.98 billion in 1997, an
increase of $87.5 million. Increases were noted in interest bearing checking
accounts, time deposits, and demand deposit accounts. Average interest bearing
checking accounts increased by $10.2 million between 1997 and 1998. Time
deposits increased by $63.4 million, and average demand deposits increased by
$17.8 million between 1997 and 1998. These increases were offset in part by a
$3.0 million decrease in money market accounts and a decrease of $1.0 million in
savings accounts during the same time period. The increases in time deposits
reflect the continuing trend among customers to seek higher interest rates by
moving funds primarily from regular savings accounts into this deposit vehicle.
The increase in demand deposits is noteworthy because these accounts represent
the principal banking relationship for most customers. The increase in deposits
reflects the impact of the new branch offices opened since 1995 and the
continuing focus at TrustCo on providing core banking services faster, cheaper
and better than its competitors. The TrustCo demand deposit account has one of
the lowest minimum balance requirements of any financial institution operating
in the same banking territory.
For 1998, TrustCo had an average of $129.6 million of time deposits with
balances greater than $100,000. The vast majority of these accounts are retail
in nature and represent traditional TrustCo customers attracted to the Bank by
the same factors as other banking customers. TrustCo does not offer these
depositors any differential in interest rates, services or terms.
The overall cost of interest bearing deposits was 4.23% in 1998 compared to
4.35% in 1997. The increase in the average balance of interest bearing deposits,
offset by a 12 basis point decrease in the average cost, resulted in an increase
of approximately $700 thousand in interest expense to $81.6 million in 1998.
32
<PAGE>
Management's Discussion and Analysis (continued)
The Company strives to maintain competitive rates on deposit accounts and
to attract customers through a combination of competitive interest rates, strong
customer service, and convenient banking locations. In this fashion, TrustCo is
able to attract deposit customers looking for a long-term banking relationship,
and to cross sell banking services utilizing the deposit account relationship as
the starting point.
<TABLE>
Maturity of Time deposits
over $100 thousand
<CAPTION>
(dollars in thousands)..........As of December 31, 1998
<S> <C>
Under 3 months..................................$ 65,193
3 to 6 months ................................. 22,401
6 to 12 months ................................. 18,546
Over 12 months.................................. 33,170
--------
Total...........................................$139,310
--------
</TABLE>
Other funding sources: The Company had $143.3 million of average short-term
borrowings outstanding during 1998 compared to $117.2 million in 1997. The
average cost of short-term borrowings was 4.71% in 1998 and 4.76% in 1997.
This resulted in an increase in interest expense of approximately $1.2 million.
A majority of short- term borrowing consists of the Trustco Short-Term
Investment Account, which was developed by the Bank to facilitate overnight
deposits from the Company's Trust Department. Daily balances are transferred by
the Trust Department into this account, and are collateralized by securities
owned by the Bank.
<TABLE>
VOLUME AND YIELD ANALYSIS
<CAPTION>
(dollars in thousands)
1998 vs. 1997 1997 vs. 1996
Increase Due to Due to Increase Due to Due to
(Decrease) Volume Rate (Decrease) Volume Rate
Interest income (TE):
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold.................... $ 4,775 5,077 (302) 127 (411) 538
Other short-term investments.......... 39 39 -- -- -- --
Securities available for sale:
Taxable............................... (4,556) (2,854) (1,702) 1,542 1,329 213
Tax-exempt............................ 739 764 (25) 2,014 1,876 138
----------------------------------------------------------------
Total securities available
for sale....................... (3,817) (2,090) (1,727) 3,556 3,205 351
Loans..................................... 1,262 3,596 (2,334) 2,173 2,303 (130)
----------------------------------------------------------------
Total interest income................ 2,259 6,622 (4,363) 5,856 5,097 759
----------------------------------------------------------------
Interest expense:
Interest bearing checking accounts........ (11) 154 (165) 5 5 --
Savings................................... (2,240) (33) (2,207) (390) (298) (92)
Time deposits
and money markets.................. 2,901 3,555 (654) 3,582 2,847 735
Short-term borrowings..................... 1,177 1,232 (55) 981 896 85
----------------------------------------------------------------
Total interest expense.............. 1,827 4,908 (3,081) 4,178 3,450 728
----------------------------------------------------------------
Net interest income (TE)........... $ 432 1,714 (1,282) 1,678 1,647 31
----------------------------------------------------------------
</TABLE>
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.
33
<PAGE>
Management's Discussion and Analysis (continued)
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 1998 increase in net
interest income was primarily the result of increases in the average balance of
earning assets.
Taxable equivalent net interest income for 1998 was $89.1 million, up $400
thousand over 1997. The average balance of interest earning assets increased by
$134.1 million or 6.1% over 1997. The yield on average interest earning assets
decreased by 36 basis points to 7.59% in 1998, compared to 7.95% in 1997, while
the average cost of interest bearing liabilities decreased 12 basis points
during 1998 to 4.26% from 4.38% in 1997. Likewise the average balance of
interest bearing liabilities increased from $1.98 billion in 1997 to $2.07
billion in 1998. Total interest expense for 1998 was $88.3 million, an increase
of $1.8 million over the 1997 expense of $86.5 million.
Capital Resources
Consistent with its long-term goal of operating a sound and profitable
financial organization, TrustCo strives to maintain strong capital ratios and to
qualify as a "well capitalized" bank in accordance with federal regulatory
requirements. Historically most of the Company's capital requirements have been
provided through retained earnings generated. New issues of equity securities
have not been required to support the Company's growth.
<TABLE>
Dividends per Share
(CHART OMITTED)
<CAPTION>
<S> <C>
1996 $.75
1997 $.86
1998 $.99
</TABLE>
A basic element of TrustCo's operating philosophy is that the Company will
not retain excess capital. All capital generated by the Company that is in
excess of the levels considered by management to be necessary for the safe and
sound operation 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 cash dividend payout
ratio of 76.0% of net income for 1998, 72.3% for 1997, and 70.4% for 1996. These
are significant payouts to the Company's shareholders and are considered by
management to be a prudent use for the excess capital in TrustCo. As to the
likelihood of future dividends, the philosophy stated above will continue in
1999 and, where appropriate, the Board of Directors will declare dividends
consistent with that operating philosophy.
TrustCo's Tier 1 capital was $167.2 million or 12.78% of risk-adjusted assets
at December 31, 1998, and $163.0 million or 13.43% of risk-adjusted assets at
December 31, 1997. Tier 1 capital to average assets at December 31, 1998 was
6.89%, as compared to 7.00% at year end 1997. At December 31, 1998 and 1997, the
subsidiary bank, Trustco, met the regulatory definition of a "well capitalized"
institution.
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 balance sheet
structure, formulation of strategy in light of expected economic conditions, and
comparison to established guidelines to control exposures 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 reviews of the loan portfolio, loans are placed in
nonaccrual status, either due to the delinquent status of the principal and/or
interest payments, or based on 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 three
payments past due. Thereafter, no interest is taken into income unless received
in cash or until such time as the borrower demonstrates a sustained ability to
make scheduled payments of interest and principal.
Nonperforming Assets
Nonperforming assets include loans in nonaccrual status, loans which have
been treated as troubled debt restructurings, loans past due three payments or
more and still accruing interest, and foreclosed real estate properties.
Nonperforming assets at year end 1998 totalled $17.6 million, a decrease of
$2.4 million from the balance of $20.0 million at year end 1997. Nonperforming
loans increased from $10.7 million in 1997
34
<PAGE>
Management's Discussion and Analysis (continued)
to $12.4 million at year end 1998. Nonperforming loans as a percentage of the
total loan portfolio were 0.94% in 1998 and 0.82% in 1997.
Included in nonperforming loans at year end 1998 are $7.1 million of loans
in nonaccrual status, an increase of $800 thousand over the 1997 balance of $6.3
million. Loans past due three payments or more and still accruing interest of
$1.5 million are up $400 thousand from the 1997 year end balance. Restructured
loans in 1997 were $3.3 million, compared to $3.8 million in 1998. Adherence to
strong underwriting standards and vigorous loan collection efforts have been
cornerstones of the operating philosophy of TrustCo, and have assisted the
Company in avoiding many of the pitfalls that others in the banking community
have experienced.
All of the $12.4 million of nonperforming loans at December 31, 1998 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 shift of
nonperforming loans to the residential real estate and retail consumer loan
portfolios for several reasons, including:
*The overall emphasis within TrustCo on residential real estate
originations,
*The relatively weak economic environment in the upstate New York market,
and
*The reduction in real estate values in much of TrustCo's market area that
has occurred since the middle of the 1990's, resulting in a reduction in
the value of 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 so as to minimize losses.
TrustCo has a diversified loan portfolio with no concentrations to any one
borrower or in any single industry, and which includes a significant balance of
residential mortgage loans to borrowers in the Capital District.
Nonperforming assets at year end 1998 include $5.2 million of foreclosed
properties, compared to $9.3 million in 1997. Once it is determined that a
borrower is unable to repay the loan balance, TrustCo takes appropriate action
with respect to the collateral securing the loan balance. The decrease in the
foreclosed properties balance is the result of efforts by the Company to
complete collection efforts on nonperforming loans. Once properties are included
in the foreclosed properties category, management takes decisive action to
dispose of them quickly. Management believes that the $5.2 million balance of
foreclosed properties is realizable through the normal course of liquidating
these properties.
Management is aware of no other loans in the Bank's portfolio that pose
significant risk of the eventual non-collection of principal and interest. As of
December 31, 1998, there were no other loans classified for regulatory purposes
that management reasonably expects will materially impact future operating
results, liquidity, or capital resources. TrustCo has no advances to borrowers
or projects located outside the United States.
Allowance for Loan Losses
The balance in the allowance for loan losses has been accumulated over the
years through periodic provisions, and is available to absorb losses on loans
which management determines are uncollectible. The adequacy of the allowance is
evaluated continuously, with emphasis on nonperforming and other loans that
management believes warrant special attention. The balance of the allowance is
maintained
<TABLE>
Nonperforming Assets
<CAPTION>
(dollars in thousands)
As of December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Loans in nonaccrual status................$ 7,147 6,298 10,748 12,832 6,370
Loans past due 3 payments or more......... 1,454 1,060 792 1,696 4,436
Restructured loans........................ 3,782 3,294 2,495 1,130 910
---------------------------------------------
Total nonperforming loans................. 12,383 10,652 14,035 15,658 11,716
Foreclosed real estate.................... 5,174 9,309 6,518 3,732 5,080
---------------------------------------------
Total nonperforming assets................$ 17,557 19,961 20,553 19,390 16,796
---------------------------------------------
Allowance for loan losses.................$ 54,375 53,455 51,561 48,320 38,851
Allowance coverage of nonperforming loans. 4.39x 5.02 3.67 3.09 3.32
Nonperforming loans as a % of total loans. 0.94% 0.82 1.13 1.28 1.01
Nonperforming assets as a % of total assets 0.71 0.84 0.91 0.89 0.85
---------------------------------------------
</TABLE>
35
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Allowance For Loan Losses
(dollars in millions)
(CHART OMITTED)
<CAPTION>
<S> <C>
1996 $51.6
1997 $53.5
1998 $54.4
</TABLE>
at a level that is, in management's judgment, representative of the loan
portfolio's inherent risk. In determining 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:
*The magnitude and nature of recent loan charge offs and the shifting of
charge offs to the residential real estate loan portfolio,
*The growth in the loan portfolio and the risks associated with the absolute
balance of the loan portfolio in relation to the economic climate in the Bank's
business territory,
*Changes in underwriting standards in the competitive environment that
TrustCo operates in,
*Significant growth in the level of losses associated with bankruptcies and
the time period needed to foreclose, secure and dispose of collateral, and
*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
turmoil and the relative ease of access by consumers to large amounts of 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.
These trends continued during 1998; however, there has been some early
indication of a stabilization in the economic climate for the Upstate New York
region. Consequently, the provision for loan losses of $4.6 million, $5.4
million, and $6.6 million for 1998, 1997, and 1996, respectively, reflects these
factors.
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 both 1998
and 1997 were $6.6 million. Recoveries were $2.9 million in 1998 and $3.1
million in 1997. The provision recorded on the consolidated income statement in
1998 was $4.6 million compared to $5.4 million in 1997.
Net charge offs as a percentage of average loans were 0.28% in both 1998
and 1997. The allowance for loan losses as a percentage of loans outstanding was
4.11% in 1998 and 4.12% in 1997. The Company has a policy of recognizing problem
loan charge offs early and pursuing collection efforts aggressively. This policy
of early intervention has proven to be a cornerstone of the strong lending
performance that TrustCo has achieved.
TrustCo has identified nonaccrual commercial and commercial real estate
loans, as well as all loans restructured under a troubled debt restructuring, as
impaired loans since the adoption of these accounting requirements.
At year end 1998 and 1997, there were $4.7 million and $3.7 million,
respectively, of impaired loans.
<TABLE>
Allowance to Loans Outstanding
(CHART OMITTED)
<CAPTION>
<S> <C>
1996 4.15%
1997 4.12%
1998 4.11%
</TABLE>
The average balances of impaired loans were $4.0 million during 1998 and
$6.0 million during 1997. The Company recognized approximately $400 thousand and
$350 thousand of interest income on these loans in 1998 and 1997, respectively.
36
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Summary of Loan Loss Experience
<CAPTION>
(dollars in thousands) 1998 1997 1996 1995 1994
Amount of loans outstanding at end of year
<S> <C> <C> <C> <C> <C>
(less unearned income).................... $1,322,703 1,298,276 1,241,882 1,226,142 1,161,789
Average loans outstanding during year
(less average unearned income)............ 1,311,967 1,260,771 1,227,407 1,187,929 1,122,698
--------------------------------------------------------
Balance of allowance at beginning of year. 53,455 51,561 48,320 38,851 34,087
Loans charged off:
Commercial .............................. 1,498 3,506 3,213 4,823 3,864
Real estate.............................. 3,883 2,014 1,498 1,694 53
Installment.............................. 1,180 1,059 937 821 907
--------------------------------------------------------
Total.................................... 6,561 6,579 5,648 7,338 4,824
--------------------------------------------------------
Recoveries of loans previously charged off:
Commercial................................ 2,308 2,718 1,963 3,504 1,125
Real estate............................... 362 169 110 258 --
Installment............................... 201 172 239 347 407
--------------------------------------------------------
Total................................... 2,871 3,059 2,312 4,109 1,532
--------------------------------------------------------
Net loans charged off..................... 3,690 3,520 3,336 3,229 3,292
--------------------------------------------------------
Additions to allowance charged to
operating expense..................... 4,610 5,414 6,577 12,698 8,056
--------------------------------------------------------
Balance of allowance at end of year....... $ 54,375 53,455 51,561 48,320 38,851
--------------------------------------------------------
Net charge offs as a percent of average
loans outstanding during year
(less average unearned income).......... 0.28% 0.28 0.27 0.27 0.29
Allowance as a percent of loans outstanding
at end of year............................ 4.11 4.12 4.15 3.94 3.34
--------------------------------------------------------
</TABLE>
Market Risk
The Company's principal exposure to market risk is with respect to interest
rate risk. Interest rate risk is the potential for economic loss due to future
interest rate changes. These economic losses can be reflected as a loss of
future net interest income and/or a loss of current market value.
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.
The objective of interest rate management 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 by this action.
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 expected cash flows or earliest repricing date. For securities
available for sale, mortgage-backed securities, asset-backed securities, and
collateralized mortgage obligations are stated using anticipated cash flows over
their average life, and debt securities are stated at final maturity. Equity
securities that the Bank is required to hold are categorized in the rate
insensitive column for this presentation. Other equity securities are shown in
the 0-90 days category. Interest bearing checking, 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.
At December 31, 1998, the Company's gap position indicated an excess of
assets repricing in the 0 to 90 day period of $175.9 million. This positive gap
position is the result of management's decision to retain $383.0 million of
federal funds sold and other short-term investments at year end 1998 for
potential reinvestment in 1999. The gap position turns negative
37
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Interest Rate Sensitivity
<CAPTION>
(dollars in thousands)...
At December 31, 1998
Repricing, or able to be repriced in:
0-90 91-365 1-5 Over 5 Rate
Days Days Years Years Insensitive Total
-----------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold............................$ 358,000 -- -- -- -- 358,000
Other short-term investments.................. 24,979 -- -- -- -- 24,979
Securities available for sale................. 74,284 117,347 213,442 298,224 14,113 717,410
Loans, net of unearned income................. 226,533 142,132 187,828 759,063 7,147 1,322,703
Noninterest rate sensitive assets............. -- -- -- -- 61,988 61,988
-----------------------------------------------------------------------
Total assets.............................. 683,796 259,479 401,270 1,057,287 83,248 2,485,080
-----------------------------------------------------------------------
Cumulative total assets.......................$ 683,796 943,275 1,344,545 2,401,832 2,485,080 2,485,080
-----------------------------------------------------------------------
Liabilities and shareholders' equity:
Deposits:
Interest bearing deposits....................$ 353,284 457,156 711,655 430,961 -- 1,953,056
Noninterest bearing deposits................. 6,699 19,603 60,817 67,239 -- 154,358
-----------------------------------------------------------------------
Total deposits............................ 359,983 476,759 772,472 498,200 -- 2,107,414
Borrowings................................... 147,924 -- -- -- -- 147,924
Noninterest rate sensitive liabilities....... -- -- -- -- 43,900 43,900
Shareholders' equity......................... -- -- -- -- 185,842 185,842
-----------------------------------------------------------------------
Total liabilities and shareholders' equity. 507,907 476,759 772,472 498,200 229,742 2,485,080
-----------------------------------------------------------------------
Cumulative total liabilities andoo shareholders$507,907 984,666 1,757,138 2,255,338 2,485,080 2,485,080
-----------------------------------------------------------------------
Incremental gap:
Interest sensitivity gap.....................$ 175,889 (217,280) (371,202) 559,087
Gap as a % of earning assets................. 7.26% 8.97 (15.32) 23.07
Interest sensitive assets to liabilities..... 136.43 56.76 56.39 245.33
Cumulative gap:
Interest sensitivity gap......................$ 175,889 (41,391) (412,593) 146,494
Gap as a % of earning assets.................. 7.26% 1.71 (17.03) 6.05
Interest sensitive assets to liabilities...... 136.43 98.43 80.51 114.32
-----------------------------------------------------------------------
</TABLE>
(an excess of liabilities subject to repricing over assets that can reprice
during that time period) in the 91 to 365 day period by $217.3 million. This
situation occurs as a result of the amount of deposits that are subject to
repricing during this time period. For the period from 0 days to 1 year, the
Company has a cumulative negative gap position of $41.4 million. Interest rate
sensitivity using gap analysis is most useful for the period of less than one
year.
The Company's gap position in relation to products, services, and the
marketplace is under constant evaluation by the Asset Allocation Committee.
There are several 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 interest 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 interest rates. Additionally, certain assets have
features which restrict changes ininterest 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.
Some borrowers' ability to service their debt may be hampered by 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 funding sources 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 changes in the markets
served by the Bank's network of branches, the mix of assets and liabilities, and
general economic conditions.
38
<PAGE>
Management's Discussion and Analysis (continued)
The Company actively manages its liquidity position through target ratios
established under its 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. Liabilities can be classified into three categories for the purposes of
managing liability-based liquidity: core deposits, purchased money, and capital
market funds. TrustCo seeks deposits that are dependable and predictable, ones
that are based as much on the level and quality of service as they are on
interest rate. At December 31, 1998, core deposits (total deposits less time
deposits greater than $100,000) amounted to $2.0 billion. Average balances of
core deposits are detailed in the table "Average Sources of Funding."
In addition to core deposits, another source of liability-based funding
available to TrustCo is purchased money, which consists of 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 1998, the average balance of purchased liabilities was $272.9
million, compared with $218.5 million in 1997, and $185.0 million in 1996.
In addition, TrustCo has approximately $250 million available under lines of
credit with the Federal Home Loan Bank of New York.
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, 1998 and 1997, commitments
to extend credit in the form of loans, including unused lines of credit,
amounted to $230.2 million and $223.8 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 used to support
third party debt, such as corporate debt issuances, industrial revenue bonds,
and municipal securities. The credit risk involved in letters of credit is
essentially the same as the risk involved in extending loan facilities to
customers, and they are subject to the same standards and management procedures
in effect to monitor other credit risks. At December 31, 1998 and 1997,
outstanding standby letters of credit were approximately $2.0 million and $7.7
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 derivatives. Management believes these
instruments pose a high degree of risk, and that investing in them is
unnecessary.
Noninterest Income and Expense
Noninterest Income: Noninterest income is a significant source of revenue for
the Company and an important factor in overall results. Total noninterest income
was $22.1 million in 1998, $17.2 million in 1997 and $10.3 million in 1996.
Included in the 1998 results are approximately $1 million of net securities
gains compared with net losses of $200 thousand in 1997 and net losses of $4.5
million in 1996. Excluding securities transactions, noninterest income would
have been $21.1 million, $17.4 million, and $14.8 million in 1998, 1997 and
1996, respectively.
The Trust Department contributes the largest recurring portion of
noninterest income through fees generated from the performance of fiduciary and
investment management services. Income from these fiduciary activities totalled
$7.0 million in 1998, $6.6 million in 1997 and $5.6 million in 1996. Trust fees
are generally calculated as a percentage of the assets under management by the
Trust Department.
<TABLE>
Noninterest income
<CAPTION>
(dollars in thousands) 1998 vs. 1997
---------------------
1998 1997 1996 Amount Percent
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust department income................... $ 6,973 6,554 5,556 419 6.4%
Fees for services to customers............ 8,799 7,671 6,981 1,128 14.7
Net gain/(loss) on securities transactions 998 (166) (4,536) 1,164 701.2
Letter of credit reserve recapture........ 2,398 -- -- 2,398 100.0
Other..................................... 2,954 3,163 2,312 (209) (6.6)
----------------------------------------------------
Total noninterest income......... $22,122 17,222 10,313 4,900 28.5%
----------------------------------------------------
</TABLE>
39
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
NONINTEREST EXPENSE
<CAPTION>
(dollars in thousands) 1998 vs. 1997
---------------------
1998 1997 1996 Amount Percent
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits........... $23,367 23,162 21,532 205 0.9%
Net occupancy expense.................... 5,898 5,270 4,178 628 11.9
Equipment expense........................ 5,292 4,165 3,289 1,127 27.1
FDIC insurance expense................... 244 246 7 (2) (0.8)
Professional services.................... 2,664 3,489 3,676 (825) (23.6)
Other real estate expenses............... 1,856 1,056 718 800 75.8
Other.................................... 9,444 8,838 8,615 606 6.9
--------------------------------------------------
Total noninterest expense....... $48,765 46,226 42,015 2,539 5.5%
--------------------------------------------------
</TABLE>
Changes in fees for services to customers reflect the fee scale used by the
Bank for pricing its services and the volume of services customers utilized.
Included in other noninterest income for 1998 is approximately $2.4 million
of nonrecurring income that occurred in the fourth quarter. A reserve against a
credit enhancement standby letter of credit was recaptured because the
underlying credit facility was terminated.
Other noninterest income included gains on sales of premises and equipment
of approximately $600 thousand in 1998 and $500 thousand in 1997. Proceeds from
the sale of these fixed assets were approximately $1.5 million in 1998 and $4.0
million in 1997.
Noninterest Expense: Noninterest expense was $48.8 million in 1998, compared
with $46.2 million in 1997 and $42.0 million in 1996. 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 40.3% in 1998, 40.6% in 1997 and 39.5% in 1996. The general
industry goal is the attainment of a 60% efficiency ratio.
<TABLE>
Efficiency Ratio
(CHART OMITTED)
<CAPTION>
<S> <C>
1996 39.51%
1997 40.61%
1998 40.26%
</TABLE>
TrustCo has consistently outperformed this industry goal by a wide margin
since 1994.
Salaries and employee benefits are the most significant component of
noninterest expense. For 1998, these expenses amounted to $23.4 million,
compared with $23.2 million in 1997. The increase in salaries and employee
benefits reflects the addition of new branches and salary adjustments given to
employees.
Net occupancy costs increased to $5.9 million in 1998 from $5.3 million in
1997 and $4.2 million in 1996. The increased occupancy costs are primarily the
result of expenses associated with the new branch facilities.
Equipment expense increased to $5.3 million from $4.2 million for 1997 due
primarily to the cost associated with the Year 2000 project. All direct costs of
consultants and equipment are categorized as a component of computer equipment
expense.
Professional fees are down by $800 thousand due primarily to a reduction in
legal expense. Other real estate expense increased by $800 thousand due to
charge offs associated with writing down properties in this portfolio to their
fair values.
During the fourth quarter 1998 the Company established a loss accrual of
$750 thousand associated with an environmental contamination remediation program
at one of its facilities. At this time, management does not believe material
additional cost for remediation will be required at this site.
Income Tax
In 1998, TrustCo recognized income tax expense of $19.4 million, as
compared to $18.9 million in 1997 and $17.3 million in 1996. The tax expense on
the Company's income was different than tax expense at the statutory rate of 35%
due primarily to tax exempt income and the effect of New York State income
taxes.
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not. The valuation allowance of $2.1 million at
December 31, 1998 and 1997 is reserved primarily for federal and state tax law
restrictions on the
40
<PAGE>
Management's Discussion and Analysis (continued)
deductibility of certain temporary differences, including the lack of state
carry backs and carry forwards.
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 assets of $36.8 million and $38.2 million at December 31, 1998 and 1997,
respectively, will be realized.
Year 2000 Update
General: Management believes that TrustCo's company-wide Year 2000 project is
proceeding on schedule. The Year 2000 project is addressing the issue of
computer software, hardware, and embedded computer chips being unable to
distinguish between the years 1900 and 2000. TrustCo operates its principal
financial accounting and record keeping systems using software purchased from
Alltel. Beginning in 1995, TrustCo began a project to upgrade this software to
the most current release available and to work with Alltel to make the
appropriate changes so as to be ready to process Year 2000 transactions. A
timetable was established for these upgrades to occur which would culminate in
the installation of a final set of upgrades that would be Year 2000 ready. Since
1995, TrustCo has worked closely with Alltel to ensure that they are making the
appropriate remediation efforts required to have their programs Year 2000 ready.
While these activities were ongoing, TrustCo directed its efforts to installing
the upgrades and making the other changes required to be positioned to handle
the Year 2000 programs from Alltel once they were completed.
In addition to the Alltel programs, there are a limited number of mainframe
application programs that were purchased from Kirchman Corporation. TrustCo
worked directly with the technical support staff at Kirchman to evaluate the
programs for any program changes required to accommodate Year 2000 processing
requirements. In light of the program structure and the fact that these programs
already utilize the full century date in their processing, it is not anticipated
that there will be any difficulties with these programs accepting Year 2000
data.
Throughout the organization, TrustCo utilizes other computer systems to
process various activities. Some of the functionality provided by these systems
is of a routine nature and is not critical to the operations of TrustCo. The
critical non-mainframe applications are the ATM application, which runs on an
IBM AS400 system; Trust Accounting, which runs on an Alpha system from Digital
Equipment Corporation (DEC); and Payroll, which is a server-based application.
The Year 2000 project also addresses the increasing speculation regarding
short- and long-term unavailability of certain consumer goods, which may prompt
people to accumulate or hoard cash in quantities sufficient to meet their
personal needs for a period of time. The Year 2000 project also has provisions
dealing with the need for additional cash in the branches later in 1999 and into
the year 2000. Arrangements have been made to obtain and transport additional
cash to the branches should the demand increase during those time periods.
Mainframe Operations: Alltel software: The vast majority of all transactions
processed by TrustCo are performed using Alltel software. Beginning in 1995, the
Company inventoried all of the applications that are processed on the mainframe
and identified the program release that TrustCo needed in order to be Year 2000
ready. A schedule was developed and outside consulting resources were engaged to
assist the in-house programming staff to have all applications operating Year
2000 ready programs upgraded by mid-1998. That schedule has been accomplished
and all Alltel Year 2000 ready programs have been installed.
Kirchman programs: TrustCo utilizes three programs purchased from Kirchman
that operate on the mainframe computer. The TrustCo in-house programming staff
and outside consultants have reviewed these programs and have concluded that the
programs are currently Year 2000 ready. Testing for Year 2000 readiness has been
completed.
IBM operating system: The IBM operating system also required an upgrade to
a new version to ensure that it would also be Year 2000 ready. This software has
been obtained and installed.
ATM application: A second system, identical to the system in place being
used for daily production, has been installed for ATM Year 2000 testing. The
system software for the platform has been upgraded to IBM's Year 2000 release.
The application software for both TrustCo and non-TrustCo ATM transactions has
been installed and placed into service. Testing for Year 2000 readiness has been
completed.
Trust Accounting: A second system, identical to the system being used for
daily production, has been installed for Trust Department Year 2000 testing. The
operating system software has been upgraded to DEC's Year 2000 release. The
application software has been upgraded to the vendor's Year 2000 release. Year
2000 readiness testing for the Trust accounting systems has been completed.
Non-information Technology: In addition to computer systems utilized for
information technology, TrustCo is also dependent upon certain computerized
operations for such things as electrical services, heating and communications.
As part of the Year 2000 project, TrustCo has taken steps to evaluate the
magnitude of the computer dependency of these systems and the potential
disruption of services should these systems fail. Third-party vendors that
support these systems have been contacted and are being monitored by TrustCo in
relation to their Year 2000 implementation plan. Significant dependencies exist
with respect to utilities such as the electric companies.
41
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Summary of unaudited quarterly financial information
<CAPTION>
(dollars in thousands, except per share data)
1998 1997
Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
Income statement:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income.............$43,403 43,814 44,174 42,659 174,050 41,895 42,863 43,646 43,601 172,005
Interest expense............ 21,755 22,458 22,805 21,329 88,347 20,888 21,377 22,034 22,221 86,520
----------------------------------------------------------------------------------------
Net interest income......... 21,648 21,356 21,369 21,330 85,703 21,007 21,486 21,612 21,380 85,485
Provision for loan losses... 1,372 1,558 450 1,230 4,610 1,210 1,185 1,345 1,674 5,414
----------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses................. 20,276 19,798 20,919 20,100 81,093 19,797 20,301 20,267 19,706 80,071
Noninterest income......... 4,554 5,347 4,715 7,506 22,122 3,536 3,809 4,326 5,551 17,222
Noninterest expense........ 11,529 11,299 11,757 14,180 48,765 11,204 11,587 11,111 12,324 4,226
-----------------------------------------------------------------------------------------
Income before
income taxes............... 13,301 13,846 13,877 13,426 54,450 12,129 12,523 13,482 12,933 51,067
Income tax expense......... 4,923 5,180 4,668 4,664 19,435 4,536 4,670 4,999 4,687 18,892
-----------------------------------------------------------------------------------------
Net income................. 8,378 8,666 9,209 8,762 35,015 7,593 7,853 8,483 8,246 32,175
-----------------------------------------------------------------------------------------
Per share data:
Basic earnings.............. 0.31 0.32 0.34 0.33 1.31 0.28 0.29 0.31 0.31 1.19
Diluted earnings............ 0.30 0.31 0.33 0.31 1.25 0.27 0.28 0.30 0.29 1.15
Cash dividends declared..... 0.24 0.24 0.24 0.28 0.99 0.21 0.21 0.21 0.24 0.86
-----------------------------------------------------------------------------------------
</TABLE>
TrustCo has obtained the Year 2000 project plans for these utilities and is
monitoring the continued compliance with their plans. The TrustCo contingency
plan also provides for generator back up power at key sites to allow for minimum
functionality should the primary electric providers be inoperative in Year 2000.
Personal Computers: TrustCo reviewed all programs and departmental functions
that utilize personal computers. This inventory was then prioritized to identify
critical programs that needed to be Year 2000 ready. All of the critical
programs have been rewritten or have had new software installed so that they are
Year 2000 ready.
Testing: To ensure that each of the systems that TrustCo operates will be Year
2000 ready, a testing plan has been developed. To assist in testing, TrustCo has
purchased redundant equipment for all of the hardware. This will facilitate
extended hours for testing and will ensure that none of the testing will in any
way affect production programs. As part of the test plan, TrustCo has identified
several dates that need to be tested. These include year end 1998, 1999 and 2000
and other critical dates during 1999 and 2000.
Detailed test scripts have been developed to determine that once the
computer clocks have been rolled forward to the test dates, specific
transactions and processes are performed to validate operational integrity. Data
aging software has also been obtained that will assist in identifying all of the
data fields and warping them to the future date as required for the test.
The test plan requires each application to be tested initially on a
stand-alone basis to ensure that it is operational in current date mode and will
support production. Once that is completed, the plan calls for each application
to be tested in future date mode on a stand-alone basis. The test plan is
designed to help identify and isolate problems, if any exist, in future date
mode testing. The individual application testing will then lead to entity-wide
testing in future date mode to ensure that all of the applications function
properly in the future date environment.
TrustCo has substantially completed testing of the mission-critical systems
in future date mode. Test data and test scripts have been completed for selected
dates and all output and processing was completed. Further testing will continue
in 1999 as TrustCo interfaces with third-party vendors and service providers.
The detailed test plan covers all aspects of TrustCo's operations on the
mainframe, as well as all other mission-critical platforms.
Customer Evaluations: TrustCo has completed a review of its significant customer
relationships and their dependency on computerized systems. In addition,
significant new customer relationships will also be subject to this evaluation.
TrustCo has established an ongoing assessment as part of the credit granting and
review process.
Vendor Monitoring: In addition to the main application software vendors, TrustCo
has numerous interfaces and data exchanges with third parties and vendors.
42
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Five Year Summary of Financial Data
(dollars in thousands, except per share data) Years Ended December 31,
1998 1997 1996 1995 1994
Statement of income data:
<S> <C> <C> <C> <C> <C>
Interest income............................... $ 174,050 172,005 166,647 161,552 140,282
Interest expense.............................. 88,347 86,520 82,342 80,200 60,698
---------------------------------------------------------
Net interest income............................ 85,703 85,485 84,305 81,352 79,584
Provision for loan losses...................... 4,610 5,414 6,577 12,698 8,056
---------------------------------------------------------
Net interest income after provision
for loan losses...................... 81,093 80,071 77,728 68,654 71,528
Noninterest income............................. 22,122 17,222 10,313 14,067 4,560
Noninterest expense............................ 48,765 46,226 42,015 44,440 40,560
---------------------------------------------------------
Income before income taxes.................... 54,450 51,067 46,026 38,281 35,528
Income tax expense............................ 19,435 18,892 17,327 12,754 12,640
---------------------------------------------------------
Net income.................................... $ 35,015 32,175 28,699 25,527 22,888
---------------------------------------------------------
Share data (1):
Average equivalent diluted shares outstanding
(in thousands)................................ 27,954 27,924 27,598 27,333 27,097
Book value.................................... $ 6.94 6.64 6.02 5.97 5.22
Cash dividends................................ 0.99 0.86 0.75 0.66 0.54
Basic earnings................................ 1.31 1.19 1.07 0.95 0.86
Diluted earnings.............................. 1.25 1.15 1.04 0.93 0.84
---------------------------------------------------------
Financial:
Return on average assets...................... 1.44% 1.40 1.29 1.23 1.15
Return on average shareholders' equity (2).... 21.47 20.23 19.05 18.03 17.01
Cash dividend payout ratio.................... 75.97 72.34 70.38 69.55 62.52
Tier 1 capital as a % of total risk adjusted
assets................................ 12.77 13.43 12.99 12.45 12.08
Total capital as a % of total risk adjusted
assets................................ 14.06 14.72 14.28 13.73 13.35
Efficiency ratio............................. 40.26 40.61 39.51 42.52 41.82
Net interest margin.......................... 3.81 4.02 4.07 4.18 4.25
---------------------------------------------------------
Average balances:
Total assets.................................. $2,433,238 2,302,598 2,220,535 2,073,391 1,994,497
Earning assets................................ 2,338,838 2,204,725 2,136,826 1,994,240 1,910,368
Loans, net.................................... 1,311,967 1,260,771 1,227,407 1,187,929 1,122,698
Allowance for loan losses..................... (55,208) (53,173) (51,233) (45,086) (37,334)
Securities available for sale................. 611,957 623,001 580,919 301,080 332,980
Investment securities......................... -- -- -- 292,908 250,812
Deposits...................................... 2,068,725 1,981,223 1,936,445 1,859,070 1,808,336
Short-term borrowings......................... 143,337 117,184 98,324 38,090 18,129
Long-term debt................................ -- -- -- 788 2,840
Shareholders' equity.......................... 180,103 167,273 155,927 145,469 136,977
</TABLE>
(1) Share and per share data have been adjusted for a 15% stock split in 1998,
1997 and 1996, a 6 for 5 stock split in 1995, and a 10% stock dividend in 1994.
(2) Average shareholders' equity excludes the market adjustment for securities
available for sale.
Each of the critical interfaces and vendors has been contacted to determine that
their Year 2000 plans are adequate and will meet the timetables required by
TrustCo. When such plans are not provided or do not adequately address Year 2000
concerns, alternate vendors or data exchange methods have been identified.
These interfaces and data exchanges with third parties and vendors occur
utilizing numerous types of programs and computer systems. Their Year 2000
projects require them to be compliant in accordance with timetables that are
acceptable to TrustCo and in accordance with guidelines established by bank
regulators. Due to the number of such interfaces and data exchanges with third
parties and vendors, there is a risk that some may not meet their schedules.
TrustCo is monitoring these activities and will take appropriate action should
the need arise.
Contingency Planning: All of the mainframe application software is currently
operational on software that the vendors have identified as being Year 2000
ready. Likewise, all of the critical PC programs
43
<PAGE>
Management's Discussion and Analysis (continued)
have been updated or rewritten to be Year 2000 ready. Substantially all future
date testing has been completed and the results provided assurance to management
that the system will be functional in Year 2000. As problems are identified, the
affected programming code is analyzed and rewritten or replaced if needed.
The contingency plan that has been developed is to ensure that all the
testing and remediation efforts are completed in order to provide adequate time
for final corrections to software prior to Year 2000. Plans are also being
developed to identify and plan for unanticipated disruption of services after
Year 2000. These plans include timetables for moving operations to disaster
recovery sites, the availability of additional programming staff during the
critical time periods and back-up for program and data files. Initial plans have
been developed and will be updated continuously.
Cost: The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial statements.
Most of the costs associated with this project are for programming services paid
to third-party consultants. Internal costs have not been captured, since they
are relatively fixed costs and are a reallocation of existing resources to this
project. Costs paid to third-party vendors during the Year 2000 project are for
the following services:
*Installation of upgrades to software so as to utilize the most recent version
released by the vendor,
*Applying the Year 2000 code,
*Applying custom code that is utilized by TrustCo in its operations, and,
*Providing production support to the Company as these upgrades are being
installed.
The cost of applying the Year 2000 remediation code to the upgraded programs
is not separately determinable from the other services that the third-party
consultants have been providing. The professional service cost for the services
noted above is estimated to be approximately $2 million for the Year 2000
project. Through year end 1998, approximately 70% of these costs have been
expensed.
Risk: The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party exchange partners and
vendors, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Year 2000 project
is expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material third-party data exchange partners and vendors. The
Company believes that, with the implementation of the modifications of all the
software and the monitoring of third-party data exchange partners and vendors,
the possibility of significant interruptions of normal operations should be
reduced.
The most likely worst case scenario is that certain interfaces and data
exchanges with third parties and vendors may not be fully functional at or after
the century date change. Because it is impossible to predict the nature of the
failure, the length of time that it takes to correct, and the extent of the
failure, it is not possible to reasonably estimate the impact on TrustCo.
Management's plan for testing with third parties and vendors will be completed
during the first half of 1999. This worst case scenario could increase the
overall cost of the Year 2000 project; however, management believes that this
scenario, though possible, has only a minor likelihood of occurring.
Readers are cautioned that forward-looking statements contained in the Year
2000 update should be read in conjunction with the Company's disclosures under
the heading "Forward-Looking Statements" dealing with cautionary statements for
the purpose of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
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.
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
Comprehensive Income: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (Statement 130), which establishes standards for reporting
and display of comprehensive income. Statement 130 states that comprehensive
income includes the reported net income of a company adjusted for items
44
<PAGE>
Management's Discussion and Analysis (continued)
that are currently accounted for as direct entries to equity, such as the
unrealized gain or loss on securities available for sale, foreign currency items
and minimum pension liability adjustments. This statement is effective for
fiscal years beginning after December 15, 1997. Management has provided the
required information in the annual report.
Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (Statement 131), which
establishes standards for reporting by public companies about operating segments
of their business. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This statement is effective for periods beginning after December 15, 1997.
Management has adopted this statement as of December 31, 1998.
Derivative Instruments and Hedging Activities: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
(Statement 133), which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Management is
currently evaluating the impact of this Statement on the Company's consolidated
financial statements.
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) certain vendors of critical systems or services failing to
comply with Year 2000 programming issues, (5) changes in the regulatory
environment, and (6) 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.
45
<PAGE>
Glossary of Terms
Allowance for Loan Losses
A balance sheet account which has been accumulated over a period of years as a
reserve against losses from problem loans. The provision for loan losses is
added to the allowance account, charge offs of loans decrease the allowance
balance and recoveries on previously charged off loans serve to increase the
balance.
Basic Earnings Per Share
Net income divided by the weighted average number of common shares outstanding
during the period.
Book Value Per Share
Total shareholders' equity divided by shares outstanding on the same date. 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.
Comprehensive Income
Net income plus the change in selected items recorded directly to capital such
as the change in market value of securities available for sale.
Core Deposits
Deposits that are traditionally stable, including all deposits other than time
deposits of $100,000 or more.
Derivative Investments
Investments in futures contracts, forwards, swaps, or option contracts, or other
investments with similar characteristics.
Diluted Earnings Per Share
Net income divided by the weighted average number of common shares outstanding
during the period, taking into consideration the effect of stock options.
Earning Assets
The sum of interest-bearing deposits with banks, securities available for sale,
investment securities, loans, net of unearned income, and federal funds sold.
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 recurring total income generated.
Federal Funds Sold
A one day investment of excess cash reserves as required under banking
regulations from one bank to another.
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 Income
The difference between income on earning assets and interest expense on
interest-bearing liabilities.
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 foreclosed real estate properties.
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 three payments 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.
Restructured Loans
A refinanced loan in which the bank allows the borrower certain concessions that
would normally not be considered. The concessions are made in light of the
borrower's financial difficulties and the bank's objective to maximize recovery
on the loan.
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.
Risk-Based Capital
The amount of capital required by federal regulatory standards, based on a
risk-weighting of assets.
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.
46
<PAGE>
Management's Statement of Responsibilities
Responsibility for the financial information presented in the Annual Report
rests with TrustCo Bank Corp NY's management. The Company believes that the
consolidated financial statements reflect fairly the substance of transactions
and present fairly the Company's financial position and results of operations in
conformity with generally accepted accounting principles appropriate in the
circumstances, applying certain estimates and judgments as required.
In meeting its responsibilities for the reliability of the consolidated
financial statements, the Company depends on its system of internal accounting
controls. The system is designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with the appropriate
corporate authorizations and recorded properly to permit the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. Although accounting control procedures are designed to
achieve these objectives, it must be recognized that errors or irregularities
may nevertheless occur. Also, estimates and judgments are required to assess and
balance the relative cost and expected benefits of the controls. The Company
believes that its accounting controls provide reasonable assurance that errors
or irregularities that could be material to the consolidated financial
statements are prevented or would be detected within a timely period by
employees in the normal course of performing their assigned functions. An
important element of the system is a continuing and extensive internal audit
program.
The Board of Directors of the Company has an Audit Committee composed entirely
of directors who are not officers or employees of the Company. The Committee
meets periodically and privately with management, the internal auditors, and the
independent public accountants to consider audit results and to discuss internal
accounting controls, auditing, and financial reporting matters.
KPMG LLP, independent public accountants, have been engaged to render an
independent professional opinion on the Company's consolidated financial
statements. Their audit is conducted in accordance with generally accepted
auditing standards and forms the basis for their report as to the fair
presentation, in the consolidated financial statements, of the Company's
financial position, operating results and cash flows.
Robert A. McCormick
President and Chief Executive Officer
Robert T. Cushing
Vice President and Chief Financial Officer
January 22, 1999
47
<PAGE>
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, 1998 and 1997, 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, 1998.
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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Albany, New York
January 22, 1999
48
<PAGE>
<TABLE>
Consolidated Statements of Income
<CAPTION>
(dollars in thousands, except per share data)
Years ended December 31,
1998 1997 1996
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $110,635 109,346 107,111
Interest and dividends on:
U. S. Treasuries and agencies 15,358 27,356 31,466
States and political subdivisions 6,177 5,637 4,254
Mortgage-backed securities 12,692 10,094 4,114
Other 6,652 1,811 2,068
Interest on federal funds sold 22,536 17,761 17,634
---------------------------
Total interest income 174,050 172,005 166,647
---------------------------
Interest expense:
Interest on deposits: 81,596 80,946 77,749
Interest on short-term borrowings 6,751 5,574 4,593
---------------------------
Total interest expense 88,347 86,520 82,342
---------------------------
Net interest income 85,703 85,485 84,305
Provision for loan losses 4,610 5,414 6,577
---------------------------
Net interest income after provision
for loan losses 81,093 80,071 77,728
---------------------------
Noninterest income:
Trust department income 6,973 6,554 5,556
Fees for services to customers 8,799 7,671 6,981
Net gain/(loss) on securities transactions 998 (166) (4,536)
Letter of credit reserve recapture 2,398 -- --
Other 2,954 3,163 2,312
---------------------------
Total noninterest income 22,122 17,222 10,313
---------------------------
Noninterest expenses:
Salaries and employee benefits 23,367 23,162 21,532
Net occupancy expense 5,898 5,270 4,178
Equipment expense 5,292 4,165 3,289
FDIC insurance expense 244 246 7
Professional services 2,664 3,489 3,676
Other real estate expenses 1,856 1,056 718
Other 9,444 8,838 8,615
---------------------------
Total noninterest expenses 48,765 46,226 42,015
---------------------------
Income before taxes 54,450 51,067 46,026
Applicable income taxes 19,435 18,892 17,327
---------------------------
Net income $35,015 32,175 28,699
===========================
Basic earnings per share $1.31 1.19 1.07
Diluted earnings per share 1.25 1.15 1.04
===========================
</TABLE>
Per share data has been adjusted for a 15% stock split in 1998,1997 and 1996.
See accompanying notes to consolidated financial statements.
49
<PAGE>
Consolidated Statements of Condition
<TABLE>
(dollars in thousands, except share data)
As of December 31,
<CAPTION>
1998 1997
ASSETS:
<S> <C> <C>
Cash and due from banks................... $ 41,950 42,740
Federal funds sold........................ 358,000 395,000
Other short-term funds.................... 24,979 --
-----------------------------------
Total cash and cash equivalents......... 424,929 437,740
Securities available for sale............. 717,410 601,899
Loans..................................... 1,323,769 1,299,492
Less:Unearned income...................... 1,066 1,216
Allowance for loan losses................ 54,375 53,455
-----------------------------------
Net loans................................ 1,268,328 1,244,821
Bank premises and equipment............... 17,022 18,609
Real estate owned......................... 5,174 9,309
Other assets.............................. 52,217 59,887
-----------------------------------
Total assets $2,485,080 2,372,265
-----------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits:
Demand................................... $ 154,358 130,345
Savings accounts......................... 660,376 650,601
Interest-bearing checking................ 266,027 240,699
Money market deposit accounts............ 58,061 57,021
Certificates of deposit (in denominations of
$100,000 or more)....................... 139,310 112,599
Other time............................... 829,282 830,598
-----------------------------------
Total deposits.......................... 2,107,414 2,021,863
Short-term borrowings..................... 147,924 127,850
Accrued expenses and other liabilities.... 43,900 43,727
-----------------------------------
Total liabilities....................... 2,299,238 2,193,440
-----------------------------------
Shareholders' Equity:
Capital stock par value $1; 50,000,000 shares authorized,
and 27,976,793 and 24,257,382 shares issued December 31, 1998
and December 31, 1997, respectively..... 27,977 24,257
Surplus................................... 110,398 112,702
Undivided profits......................... 40,533 32,119
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale, net of tax 18,603 15,851
Treasury stock at cost - 1,184,525 and 855,850 shares at
December 31, 1998 and December 31, 1997, respectively (11,669) (6,104)
-----------------------------------
Total shareholders' equity.............. 185,842 178,825
-----------------------------------
Total liabilities and shareholders' equity $2,485,080 2,372,265
-----------------------------------
</TABLE>
See accompanying notes to consolidated interim financial statements.
50
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
(dollars in thousands, except per share data)
<CAPTION>
Three Years Ended December 31, 1998
Accumulated
Other Compre-
Capital Undivided Comprehensive hensive Treasury
Stock Surplus Profits Income Income Stock
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $18,135 116,128 14,720 12,363 (1,247)
Comprehensive income
Net income 1996 -- -- 28,699 -- 28,699 --
--------
Other comprehensive income, net of tax:
Unrealized net holding loss arising during the year,
net of tax (pre-tax loss $16,670) -- -- -- -- (9,807) --
Reclassification adjustment for net loss realized
in net income during the year (pre-tax loss $4,536) -- -- -- -- 2,683 --
-------
Other comprehensive income -- -- -- (7,124) (7,124) --
-------
Comprehensive income -- -- -- 21,575 --
-------
Cash dividend declared, $.75 per share -- -- (20,198) -- --
Stock options exercised 91 844 -- -- --
15% stock split (2,733,786 shares) 2,733 (2,733) -- -- --
Treasury stock purchased -- -- -- -- (805)
Sale of treasury stock -- (11) -- -- 805
---------------------------------------------------------------
Ending balance, December 31, 1996 20,959 114,228 23,221 5,239 (1,247)
Comprehensive income
Net income 1997 -- -- 32,175 -- 32,175 --
-------
Other comprehensive income, net of tax:
Unrealized net holding gain arising during the year,
net of tax (pre-tax gain $17,709) -- -- -- -- 10,514 --
Reclassification adjustment for net loss realized
in net income during the year (pre-tax loss $166) -- -- -- -- 98 --
-------
Other comprehensive income -- -- -- 10,612 10,612 --
-------
Comprehensive income -- -- -- 42,787 --
-------
Cash dividend declared, $.86 per share -- -- (23,277) -- --
Stock options exercised 139 1,485 -- -- --
15% stock split (3,158,906 shares) 3,159 (3,159) -- -- --
Treasury stock purchased -- -- -- -- (7,735)
Sale of treasury stock -- 148 -- -- 2,878
----------------------------------------------------------------
Ending balance, December 31, 1997 24,257 112,702 32,119 15,851 (6,104)
Comprehensive income
Net income 1998 -- -- 35,015 -- 35,015 --
-------
Other comprehensive income, net of tax:
Unrealized net holding gain arising during the year,
net of tax (pre-tax gain $5,652) -- -- -- -- 3,342 --
Reclassification adjustment for net gain realized
in net income during the year (pre-tax gain $998) -- -- -- -- (590) --
-------
Other comprehensive income -- -- -- 2,752 2,752 --
-------
Comprehensive income -- -- -- 37,767 --
-------
Cash dividend declared, $.99 per share -- -- (26,601) -- --
Stock options exercised 73 822 -- -- --
15% stock split (3,646,672 shares) 3,647 (3,647) -- -- --
Treasury stock purchased -- -- -- -- (10,439)
Sale of treasury stock -- 521 -- -- 4,874
----------------------------------------------------------------
Ending balance, December 31, 1998 $27,977 110,398 40,533 18,603 (11,669)
----------------------------------------------------------------
</TABLE>
Per share data has been adjusted for a 15% stock split in 1998, 1997 and 1996.
See accompanying notes to consolidated financial statements.
51
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
(dollars in thousands) Years Ended December 31,
1998 1997 1996
-----------------------------------------
Increase/(decrease) in cash and cash equivalents
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.............................................................$ 35,015 32,175 28,699
-----------------------------------------
Adjustments to reconcile net income to net cash provided by/
(used in) operating activities:
Depreciation and amortization......................................... 2,532 3,342 2,951
Gain on sales of fixed assets......................................... (591) (460) ---
Provision for loan losses............................................. 4,610 5,414 6,577
Provision for deferred tax (benefit)/expense.......................... 1,405 (3,693) (4,088)
Net (gain)/loss on sale or call of securities available for sale...... (998) 166 4,536
(Increase)/decrease in taxes receivable............................... (540) 730 (1,115)
Decrease in interest receivable....................................... 1,189 1,599 856
Increase/(decrease) in interest payable............................... (293) 191 144
(Increase)/decrease in other assets................................... 8,416 5,386 (17,098)
Increase/(decrease) in accrued expenses............................... (464) 8,125 4,894
-----------------------------------------
Total adjustments..................................................... 15,266 20,800 (2,343)
-----------------------------------------
Net cash provided by operating activities............................. 50,281 52,975 26,356
-----------------------------------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale.................. 32,785 179,342 382,780
Proceeds from maturities and calls of securities available for sale... 229,362 205,256 125,978
Purchase of securities available for sale............................. (372,006) (350,118) (503,892)
Net increase in loans................................................. (32,904) (70,148) (27,469)
Proceeds from sales of real estate owned.............................. 4,220 3,665 4,196
Proceeds from sales of fixed assets................................... 1,478 3,967 ---
Capital expenditures.................................................. (1,832) (2,360) (1,041)
-----------------------------------------
Net cash used in investing activities................................. (138,897) (30,396) (19,448)
-----------------------------------------
Net increase in deposits.............................................. 85,551 68,717 22,497
Increase in short-term borrowing...................................... 20,074 16,188 55,008
Proceeds from exercise of stock options............................... 895 1,624 935
Proceeds from sale of treasury stock.................................. 5,395 3,026 794
Payments to acquire treasury stock.................................... (10,439) (7,735) (805)
Dividends paid........................................................ (25,671) (22,438) (19,447)
------------------------------------------
Net cash provided by financing activities............................. 75,805 59,382 58,982
------------------------------------------
Net increase/(decrease) in cash and cash equivalents.................... (12,811) 81,961 65,890
Cash and cash equivalents at beginning of year.......................... 437,740 355,779 289,889
------------------------------------------
Cash and cash equivalents at end of year...............................$ 424,929 437,740 355,779
------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................,.....................................$ 88,640 86,329 82,198
Income taxes paid..................................................... 18,273 21,615 22,363
Transfer of loans to real estate owned................................ 4,787 10,234 8,393
Increase in dividends payable......................................... 930 839 751
Change in unrealized (gain)/loss on securities available for sale-gross (4,654) (17,875) 12,134
Change in deferred tax effect on unrealized gain/(loss) on securities
available for sale.................................................. 1,902 7,263 (5,010)
------------------------------------------
</TABLE>
52
<PAGE>
(1) 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)
and its operating subsidiary Trustco Realty Corp., 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.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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 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 fo 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, both of which are
required holdings for the Company) are included in securities available for sale
at cost since there is no readily available market value.
The cost of securities available for sale is adjusted for amortization of
premium and accretion of discount on a method that equates to the level yield.
Gains and losses on the sale of securities available for sale are based
on the amortized cost of the specific security sold.
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 3 payments or more past due and still accruing interest. Generally,
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
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. Loans may be removed from nonaccrual status when they become current
as to principal and interest and have demonstrated a sustained ability to make
loan payments in accordance with the contractual terms of the loan. Loans may
also be removed from nonaccrual status when, in the opinion of management, the
loan is expected to be fully collectable as to principal and interest.
Impaired loans have been defined since January 1, 1995 as commercial and
commercial real estate loans in nonaccrual status and restructured loans.
Allowance for Loan Losses
An allowance for loan losses is maintained at a level considered adequate
by management to provide for probable 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
allowance 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 straight-line 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 noninterest expense.
Income Taxes
Deferred taxes are recorded for the future tax consequences of events that
have been recognized in
53
<PAGE>
Notes to Consolidated Financial Statements(continued)
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 $20.1 million plus 1999 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.
Stock Option Plans
The Company's stock option plans are accounted for in accordance with the
provisions of the Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" (APB Opinion 25) and as such no compensation expense
has been recorded for these plans.
Earnings Per Share
The Company computes and presents earnings per share (EPS) in accordance
with the Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (Statement 128), which requires dual
presentation of basic and diluted EPS.
Basic EPS is computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted EPS is computed by
dividing net income by the weighted average number of common shares outstanding
during the period, taking into consideration the effect of stock options. All
prior period EPS data has been restated to conform to the provisions of
Statement 128.
Reclassification of Prior Year Statements
It is the Company's policy to reclassify prior year consolidated financial
statements to conform to the current year presentation.
Segment Reporting
During 1998, the Company adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 131 "Disclosure about Segments
of an Enterprise and Related Information" (Statement 131). This statement
requires the Company to report financial and other information about operating
segments meeting certain quantitative and other requirements as defined by this
statement.
The Company's operations are solely in the financial services industry and
include the provision of traditional banking services. The Company operates
solely in the geographical region of Upstate New York. In the opinion of
management, the Company does not have any reportable segments as defined by
Statement 131.
(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 $10.0 million and $9.8
million at December 31, 1998 and 1997, respectively.
<TABLE>
(3) Securities Available for Sale
The amortized cost and approximate market value of the securities available
for sale are as follows:
<CAPTION>
(dollars in thousands) At December 31, 1998
Gross Gross Approximate
Amortized Unrealized Unrealized Market Value
Cost Gains Losses
U.S. Treasuries
<S> <C> <C> <C> <C>
and agencies............ $163,244 4,581 -- 167,825
States and political
subdivisions............ 124,390 5,598 243 129,745
Mortgage-backed
securities............... 246,531 3,390 432 249,489
Other...................... 126,183 303 138 126,348
----------------------------------------------------------
Total debt
securities............. 660,348 13,872 813 673,407
Equity securities.......... 25,610 18,393 -- 44,003
----------------------------------------------------------
Total securities
available for
sale............... $685,958 32,265 813 717,410
----------------------------------------------------------
</TABLE>
<TABLE>
(dollars in thousands) At December 31, 1997
Gross Gross Approximate
Amortized Unrealized Unrealized Market Value
Cost Gains Losses
U.S. Treasuries
<S> <C> <C> <C> <C>
and agencies...... $273,517 5,354 48 278,823
States and political
subdivisions...... 109,210 4,577 -- 113,787
Mortgage-backed
securities......... 151,989 3,196 105 155,080
Other................ 15,430 26 5 15,451
----------------------------------------------------------
Total debt
securities....... 550,146 13,153 158 563,141
Equity securities.... 24,955 13,803 -- 38,758
----------------------------------------------------------
Total securities
available for
sale.......... $575,101 26,956 158 601,899
----------------------------------------------------------
</TABLE>
54
<PAGE>
Notes to Consolidated Financial Statements(continued)
<TABLE>
The following table distributes the debt securities available for sale
portfolio as of December 31, 1998, based on the securities' final maturity
(mortgage-backed securities are stated using an estimated average life):
<CAPTION>
(dollars in thousands)
Approximate
Amortized Market
Cost Value
--------------------
<S> <C> <C>
Due in one year or less................$ 46,751 47,046
Due after one year through five years.. 275,580 278,193
Due after five years through ten years. 200,888 205,755
Due after ten years.................... 137,129 142,413
--------------------
$660,348 673,407
--------------------
</TABLE>
<TABLE>
Actual maturities may differ from contractual maturities because of
securities prepayments and the right of certain issuers to call or prepay their
obligations without penalty.
The proceeds from sales of securities, gross realized gains and gross
realized losses from sales and calls during 1998, 1997 and 1996 are as follows:
<CAPTION>
(dollars in thousands)
At December 31,
1998 1997 1996
<S> <C> <C> <C>
Proceeds...............$ 32,785 179,342 382,780
Gross realized gains... 1,000 828 3,214
Gross realized losses.. 2 994 7,750
</TABLE>
The amount of securities available for sale that have been pledged to
secure public deposits and for other purposes required by law amounted to $269.2
million and $288.9 million at December 31, 1998 and 1997, respectively.
There are no securities of a single issuer (excluding issues of the U.S.
government and its agencies) that represent 10% or more of shareholders' equity
at December 31, 1998 and 1997.
<TABLE>
(4) Loans and Allowance for Loan Losses
A summary of loans by category is as follows:
<CAPTION>
(dollars in thousands)
At December 31,
1998 1997
<S> <C> <C>
Commercial............................$ 187,308 183,855
Construction.......................... 12,782 7,902
Residential mortgage loans............ 949,524 905,298
Home equity line of credit............ 147,581 172,448
Installment loans..................... 26,574 29,989
----------------------------
Total loans........................... 1,323,769 1,299,492
Less: Unearned income................. 1,066 1,216
Allowance for loan losses....... 54,375 53,455
----------------------------
Net Loans.............................$ 1,268,328 1,244,821
----------------------------
</TABLE>
At December 31, 1998 and 1997, loans to executive officers, directors, and
to associates of such persons aggregated $3.8 million and $6.8 million,
respectively. During 1998, new loans of $1.9 million were made and repayments of
loans totalled $4.9 million. 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 portion of its debtors' ability to repay is
dependent upon the economic conditions prevailing in New York State.
<TABLE>
The following table sets forth the information with regard to nonperforming
loans:
<CAPTION>
(dollars in thousands)
At December 31,
1998 1997 1996
<S> <C> <C> <C>
Loans in nonaccrual status.........$7,147 6,298 10,748
Loans contractually past due
3 payments or more and still
accruing interest............. 1,454 1,060 792
Restructured loans ............... 3,782 3,294 2,495
------------------------
Total nonperforming loans..........$12,383 10,652 14,035
------------------------
</TABLE>
Interest on nonaccrual and restructured loans of $1.0 million in each of
1998 and 1997, and $1.3 million in 1996 would have been earned in accordance
with the original contractual terms of the loans. Approximately $498 thousand,
$519 thousand, and $834 thousand of interest on nonaccrual and restructured
loans was collected and recognized as income in 1998, 1997, and 1996,
respectively. There are no commitments to extend further credit on nonaccrual or
restructured loans.
<TABLE>
Transactions in the allowance for loan losses account are summarized as
follows:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year...$53,455 51,561 48,320
Provision for loan losses...... 4,610 5,414 6,577
Loans charged off.............. (6,561) (6,579) (5,648)
Recoveries on loans
previously charged off........ 2,871 3,059 2,312
----------------------------
Balance at year end............$54,375 53,455 51,561
----------------------------
</TABLE>
55
<PAGE>
Notes to Consolidated Financial Statements(continued)
The Company identifies impaired loans and measures the impairment in
accordance with 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
Disclosures." 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 or the loan is restructured in a troubled debt
restructuring subsequent to January 1, 1995. These standards are applicable
principally to commercial and commercial real estate loans; however, certain
provisions dealing with restructured loans also apply to retail loan products.
There were no nonaccrual commercial and commercial real estate loans
classified as impaired loans at December 31, 1998 and 1997. There were newly
restructured retail loans totalling $4.7 million and $3.7 million that as of
December 31, 1998 and 1997 respectively, were identified as impaired loans. None
of the allowance for loan losses has been allocated to these impaired loans
because management believes 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 1998, 1997, and 1996, the average balance of impaired loans was $4.0
million, $6.0 million, and $8.5 million, respectively, and there was
approximately $412 thousand, $350 thousand, and $562 thousand of interest income
recorded on these loans in the accompanying consolidated statements of income.
There were $1.4 million of loans pledged for various purposes at December
31, 1997. No loans were pledged at December 31, 1998.
<TABLE>
(5) Bank Premises and Equipment
A summary of premises and equipment at December 31, 1998 and 1997 follows:
<CAPTION>
(dollars in thousands)
1998 1997
<S> <C> <C>
Land............................. $ 2,877 2,511
Buildings ....................... 21,537 22,461
Furniture, fixtures and equipment. 16,892 16,229
Leasehold improvements 3,692 3,679
-----------------
44,998 44,880
Accumulated depreciation and
amortization....... (27,976) (26,271)
-----------------
Total..................................$17,022 18,609
-----------------
</TABLE>
Depreciation and amortization expense approximated $2.5 million, $3.3
million, and $3.0 million for the years 1998, 1997, and 1996, respectively.
Occupancy expense of Bank premises included rental expense of $1.4 million in
1998, $1.3 million in 1997 and $1.2 million in 1996.
<TABLE>
(6) Short-Term Borrowings
Short-term borrowings, consisting primarily of the Trustco Short-Term
Investment Account, were as follows:
<CAPTION>
1998
(dollars in thousands) Trustco Other
Short-Term Short-Term
Account Borrowings Total
Amount outstanding at
<S> <C> <C> <C>
December 31, 1998...............$104,107 43,817 147,924
Maximum amount
outstanding at any
month end................ 128,562 48,266 169,254
Average amount
outstanding.................... 106,660 36,677 143,337
Weighted average interest rate:
For the year................... 5.12% 3.53 4.71
As of year end................. 4.45 3.29 4.11
</TABLE>
<TABLE>
1997
(dollars in thousands) Trustco Other
Short-Term Short-Term
Account Borrowings Total
Amount outstanding at
<S> <C> <C> <C>
December 31, 1997..............$ 94,848 33,002 127,850
Maximum amount
outstanding at any
month end.................... 95,062 34,136 129,198
Average amountoo outstanding.... 90,633 26,551 117,184
Weighted average interest rate:
For the year................. 5.15% 3.43 4.76
As of year end............... 5.30 3.59 4.86
</TABLE>
The Trustco Short-Term Investment Account balances are immediately
withdrawable. All short-term borrowings are collateralized by securities of the
Bank pledged for that purpose.
Trustco has approximately $250 million of available lines of credit with
the Federal Home Loan Bank.
<TABLE>
(7) Income Taxes
A summary of income tax expense/(benefit) included in the consolidated
statements of income follows:
<CAPTION>
(dollars in thousands) For the years ended December 31,
1998 1997 1996
Current tax expense:
<S> <C> <C> <C>
Federal......................$14,498 17,642 16,705
State........................ 3,532 4,943 4,710
-----------------------------
Total current tax expense..... 18,030 22,585 21,415
Deferred tax expense/(benefit) 1,405 (3,693) (4,088)
-----------------------------
Total income tax expense..... $19,435 18,892 17,327
-----------------------------
</TABLE>
56
<PAGE>
Notes to Consolidated Financial Statements(continued)
<TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 is as follows:
<CAPTION>
(dollars in thousands)December 31,
1998 1997
Deductible/ Deductible/
(taxable) (taxable)
temporary temporary
differences differences
<S> <C> <C>
Bond accounting......................$ (185) (54)
Benefits and deferred
remuneration.................... 4,438 4,354
Deferred loan fees, net.............. 553 642
Difference in reporting the
provision for loan losses,net...... 24,460 26,605
Other income or expense
not utilized for tax purposes....... 6,934 6,540
Depreciable assets................... 1,395 1,294
Other items.......................... 1,278 897
------------------------
Total.......................... 38,873 40,278
Valuation reserve.................... (2,051) (2,051)
------------------------
Net deferred tax asset
at end of year.................... 36,822 38,227
Net deferred tax asset at
beginning of year................ 38,227 34,534
------------------------
Deferred tax expense/(benefit).......$ 1,405 (3,693)
------------------------
</TABLE>
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not. The valuation allowance of $2.1 million at
December 31, 1998 and 1997 is primarily reserved for federal and state tax law
restrictions on the deductibility of certain temporary differences, including
the lack of state carrybackwards and carryforwards. 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 $36.8 million
and $38.2 million at December 31, 1998 and 1997, 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 $12.8 million at December 31,1998,
and $10.9 million at December 31, 1997, relating to the net unrealized gains on
securities available for sale.
<TABLE>
The effective tax rates differ from the statutory federal income tax rate.
The reasons for these differences are as follows:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax rate.. 35.0% 35.0 35.0
Increase/(decrease) in taxes
resulting from:
Tax exempt income.................. (3.7) (3.7) (3.3)
State income tax, net of
federal tax benefit............... 4.6 5.3 5.4
Other items....................... (0.2) 0.4 0.6
----------------------------
Effective income tax rate.......... 35.7% 37.0 37.7
----------------------------
</TABLE>
(8) Benefit Plans
(a) Retirement Plan
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's Trust Department. The
following table sets forth the plans' funded status and amounts recognized in
the Company's consolidated statements of condition at December 31, 1998 and
1997:
<TABLE>
Change in Projected Benefit Obligation:
<CAPTION>
Projected
Pension Benefits
(dollars in thousands)................ 1998 1997
Projected benefit obligation
<S> <C> <C>
at beginning of year.............. $19,405 16,336
Service cost.......................... 798 712
Interest cost......................... 1,215 1,054
Benefits paid......................... (1,445) (1,025)
Assumption changes and other.......... (200) 2,328
--------------------
Projected benefit obligation
at end of year...................... $19,773 19,405
--------------------
</TABLE>
Assumption changes in 1997 included the effect of new mortality tables on the
plan's projected benefit obligation.
57
<PAGE>
Notes to Consolidated Financial Statements(continued)
<TABLE>
Change in Plan Assets:
<CAPTION>
(dollars in thousands) 1998 1997
Fair value of plan assets at
<S> <C> <C>
beginning of year....................... $29,776 25,170
Actual return on plan assets............. 5,463 5,631
Benefits paid............................ (1,445) (1,025)
------------------------
Fair value of plan assets at end of year. 33,794 29,776
Funded status............................ 14,020 10,371
Unrecognized net actuarial gain.......... (11,431) (7,979)
Unrecognized prior service cost.......... (329) (375)
Unrecognized transition asset............ (295) (442)
------------------------
Prepaid benefit cost..................... $ 1,965 1,575
------------------------
</TABLE>
<TABLE>
Components of Net Pension Benefit:
<CAPTION>
For the years ended December 31,
(dollars in thousands) 1998 1997 1996
<S> <C> <C> <C>
Service cost.............................$ 798 712 653
Interest cost............................ 1,215 1,054 995
Expected return on plan assets........... (1,902) (1,603) (1,383)
Amortization of net gain................. (308) (220) (125)
Amortization of unrecognized
prior service cost...................... (45) (45) (45)
Amortization of unrecognized
transition asset........................ (148) (148) (148)
-------------------------------
Net periodic pension benefit.............$ (390) (250) (53)
-------------------------------
</TABLE>
<TABLE>
The weighted average discount rate, the rate of increase in future
compensation levels, and the expected long-term rate of return used in
determining the actuarial present value of projected benefit obligations, are as
follows:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted average discount rate ........... 6.50% 6.50 6.50
Rate of increase in future
compensation ......................... 6.00 6.00 6.00
Expected long-term rate of return
on assets .............................. 6.50 6.50 6.50
</TABLE>
The Company also has a 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 $3.4 million, $3.0
million, and $2.6 million in 1998, 1997, and 1996, respectively.
Rabbi trusts have been established for certain benefit plans in 1996. These
rabbi trust accounts are administered by the Company's Trust Department and
invest primarily in the Trustco Short-Term Investmen t Account. These assets are
reflected as other assets in the December 31, 1998 and 1997, consolidated
statement of condition.
(b) Postretirement Benefits
The Company permits retirees under age 65 to participate in the Company's
medical plan by paying the same premium as the active employees. At age 65, the
Bank provides a Medicare Supplemental program to retirees.
The following table shows the plan's funded status and amounts recognized
in the Company's consolidated statements of condition at December 31, 1998 and
1997.
<TABLE>
Change in Projected Benefit Obligation:
<CAPTION>
Projected Post-
Retirement Benefits
(dollars in thousands) 1998 1997
Projected benefit obligation
<S> <C> <C>
at beginning of year................$ 8,807 7,706
Service cost............................ 203 378
Retiree contributions................... 70 69
Interest cost........................... 336 513
Benefits paid........................... (194) (162)
Assumption changes and other............ (3,504) 303
Projected benefit obligation
-----------------
at end of year.......................$ 5,718 8,807
-----------------
</TABLE>
Assumption changes included the effect of changes to the Company's health
insurance plans.
<TABLE>
Change in Plan Assets:
<CAPTION>
(dollars in thousands) 1998 1997
Fair value of plan assets at
<S> <C> <C>
beginning of year....................$ 10,414 8,860
Actual return on plan assets.............. 2,049 1,877
Employer contribution..................... 4 5
Retiree contributions..................... 70 69
Taxes..................................... (463) (235)
Benefits paid............................. (193) (162)
-------------------
Fair value of plan assets at end of year.. 11,881 10,414
-------------------
Funded status............................. 6,163 1,607
Unrecognized net actuarial gain........... (7,435) (3,002)
-------------------
Accrued benefit cost.....................$ 1,272 (1,395)
-------------------
</TABLE>
<TABLE>
Components of Net Periodic Benefit Cost:
<CAPTION>
For the years ended December 31,
(dollars in thousands) 1998 1997 1996
<S> <C> <C> <C>
Service cost..........................$ 203 378 323
Interest cost............................336 513 444
Expected return on plan assets..........(398) (336) (304)
Amortization of net gain................(260) (40) (31)
-------------------
Net periodic pension (benefit)/expense$ (119) 515 432
-------------------
</TABLE>
58
<PAGE>
Notes to Consolidated Financial Statements(continued)
For measurement purposes, a 7.0% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
1998 and thereafter. A one percentage point increase in the assumed health care
cost in each year would increase the accumulated postretirement benefit
obligation, as of December 31, 1998, by approximately $845 thousand, and would
increase the aggregate of the service and the interest cost components of net
periodic postretirement benefit cost for the year ended December 31, 1998, by
approximately $125 thousand.
<TABLE>
The weighted average assumptions used to determine the projected benefit
obligation at December 31, 1998, 1997, and 1996 were:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Discount rate..............................6.50% 6.50 6.50
After tax return on plan assets............3.84 3.84 3.84
</TABLE>
(c) Incentive and Bonus Plans
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 $1.4 million in both 1998 and 1997 and $1.3 million in
1996.
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 $3.0 million, $2.6 million, and
$2.1 million in 1998, 1997 and 1996 respectively.
The Company has awarded 1.5 million performance bonus units to the
executive officers and directors. These units become vested and exercisable only
under a change of control as defined. The units were awarded based upon the
stock price at the time of grant and, if exercised under a change of control
allow the holder to receive the increase in value offered in the exchange over
the stock price at the date of grant for each unit.
(d) Stock Option Plans
<TABLE>
At December 31, 1998, the Company has stock option plans for officers and
directors as described below. TrustCo applies APB Opinion No. 25 and related
Interpretations in accounting for these plans. Accordingly, no compensation cost
has been recognized for these fixed stock option plans. Had compensation cost
for the Company's stock-based compensation plans been determined consistent with
Statement of Financial Accounting Standards No. 123 (Statement 123), "Accounting
for Stock-Based Compensation," the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated as follows:
<CAPTION>
(dollars in thousands
except per share data)
1998 1997 1996
Net income:
<S> <C> <C> <C>
As reported.................$35,015 32,175 28,699
Pro forma................... 34,239 31,672 28,364
Basic earnings per share:
As reported ................$ 1.31 1.19 1.07
Pro forma................... 1.28 1.17 1.05
Diluted earnings per share:
As reported................... 1.25 1.15 1.04
Pro forma 1.23 1.14 1.02
</TABLE>
Proforma net income and earnings per share reflect options granted since
1995. The full impact of calculating compensation cost for all stock options
under Statement 123 is not reflected in the proforma net income and earnings
per share amounts presented above because compensation cost is reflected over
the options' expected life and compensation cost for options granted prior to
January 1, 1995 is not considered.
Under the 1995 TrustCo Bank Corp NY Stock Option Plan, the Company may
grant options to its eligible employees for up to approximately 1.8 million
shares of common stock. Under the 1993 Directors Stock Option Plan, the Company
may grant options to its directors for up to approximately 200 thousand shares
of its common stock. Under both plans, the exercise price of each option equals
the market price of the Company's stock on the date of grant, and an option's
maximum term is ten years. Options vest over a five year period from the date
the options are granted for the employee plan and they are immediately
exercisable for the directors plan.
<TABLE>
A summary of the status of TrustCo's stock option plans as of December 31,
1998, 1997 and 1996 and changes during the years ended on those dates are as
follows:
<CAPTION>
Outstanding Options Exercisable Options
Average Average
Option Option
Shares Price Shares Price
<S> <C> <C> <C> <C>
Balance, January 1, 1996..... 2,338,389 $ 9.11 1,441,872 $8.14
New options awarded - 1996... 521,659 13.41 117,716 13.63
Cancelled options - 1996..... 10,951 11.80 -- --
Exercised options - 1996..... 140,091 5.71 140,091 5.71
Options became exercisable... -- -- 352,764 9.94
-------------------------------------------
Balance, December 31, 1996... 2,709,006 10.10 1,772,261 9.05
New options awarded - 1997... 460,230 15.80 102,626 15.80
Cancelled options - 1997..... 35,959 12.80 -- --
Exercised options - 1997..... 188,752 8.62 188,752 8.62
Options became exercisable... -- -- 354,900 11.47
------------------------------------------
Balance, December 31, 1997... 2,944,525 11.05 2,041,035 9.85
New options awarded - 1998... 396,175 23.03 88,435 23.03
Cancelled options - 1998..... 9,105 13.57 -- --
Exercised options - 1998..... 84,660 8.38 84,660 8.38
Options became exercisable... -- -- 358,519 12.84
------------------------------------------
Balance, December 31, 1998... 3,246,935 $12.58 2,403,329 $10.84
------------------------------------------
</TABLE>
59
<PAGE>
<TABLE>
There are approximately 2.4 million, 2.0 million and 1.8 million of options
that are exercisable at year end 1998, 1997 and 1996, respectively. The fair
value of each option as of the grant date, estimated using the Black - Scholes
pricing model, and calculated in accordance with Statement 123 was:
<CAPTION>
Employees' Directors'
Plan Plan
<S> <C> <C>
1998...................................$4.73 4.45
1997................................... 2.76 2.50
1996................................... 2.46 2.76
</TABLE>
<TABLE>
The following assumptions were utilized in the calculation of the fair
value of the options under Statement 123:
<CAPTION>
Employees' Directors'
Plan Plan
Expected dividend yield:
<S> <C> <C>
1998............................ 4.12% 4.12
1997............................ 5.15 5.15
1996............................ 5.06 5.06
Risk-free interest rate:
1998............................ 5.43 5.44
1997............................ 6.39 6.35
1996............................ 6.65 6.62
Expected volatility rate:
1998............................ 19.41 18.87
1997............................ 20.20 19.31
1996............................ 20.65 21.23
Expected lives....................... 7.5 years 6.0 years
</TABLE>
<TABLE>
The following table summarizes information about the stock option plans for
options outstanding at December 31, 1998:
<CAPTION>
Weighted
Options Average Weighted
Range of Outstanding Remaining Average
Exercise Year End Contractual Exercise
Price 1998 Life Price
-----------------------------------------------
Less than
<S> <C> <C> <C>
$10.00 1,026,152 4.4 years $7.94
Between $10.01
and $15.00 1,354,663 6.7 years 11.93
Greater than
$15.01 866,120 9.4 years 19.10
-----------------------------------------------
Total 3,246,935 6.7 years $12.58
-----------------------------------------------
</TABLE>
<TABLE>
The following table summarizes information about the exercisable stock
options at December 31, 1998:
<CAPTION>
Weighted
Options Average Weighted
Range of Outstanding Remaining Average
Exercise Year End Contractual Exercise
Price 1998 Life Price
-----------------------------------------------
Less than
<S> <C> <C> <C>
$10.00 1,026,152 4.4 years $7.94
Between $10.01
and $15.00 1,084,619 6.5 years 11.66
Greater than
$15.01 292,558 9.3 years 17.97
-----------------------------------------------
Total 2,403,329 5.9 years $10.84
-----------------------------------------------
</TABLE>
<TABLE>
(a) Leases
The Bank leases certain banking premises. These leases are accounted for as
operating leases with minimum rental commitments in the amounts presented below.
The majority of these leases contain options to renew.
<CAPTION>
(dollars in thousands)
<S> <C>
1999...............................................$ 1,236
2000............................................... 1,158
2001............................................... 1,082
2002............................................... 899
2003............................................... 815
2004 and after..................................... 4,986
-------
$10,176
-------
</TABLE>
(b) Litigation
Existing litigation arising in the normal course of business is not expected
to result in any material loss to the Company.
<TABLE>
(c) Time Deposits
At December 31, 1998, the maturity of total time deposits is as follows:
<CAPTION>
(dollars in thousands)
<S> <C>
Under 1 year..................................... $693,721
1 to 2 years..................................... 194,262
2 to 3 years..................................... 34,818
3 to 4 years..................................... 17,593
4 to 5 years..................................... 24,135
over 5 years..................................... 4,063
--------
$968,592
--------
</TABLE>
(d) Contingent Liability
The Company established a loss accrual of $750 thousand associated with an
environmental contamination remediation program at one of its facilities. At
this time, management does not believe material additional cost for remediation
will be required at this site.
60
<PAGE>
Notes to Consolidated Financial Statements(continued)
(10) Earnings Per Share
<TABLE>
A reconciliation of the component parts of earnings per share for 1998,
1997 and 1996 follows:
<CAPTION>
(dollars in thousands, Weighted
except per share data) Average Shares Per share
Income Outstanding Amounts
For the year ended
December 31, 1998:
Basic EPS:
Income available to common
<S> <C> <C> <C>
shareholders...............$35,015 26,813 $1.31
Effect of Diluted Securities:
Stock Options............... -- 1,141 --
-------------------------------------
Diluted EPS.................$35,015 27,954 $1.25
-------------------------------------
For the year ended
December 31, 1997:
Basic EPS:
Income available to common
shareholders...............$32,175 27,074 $1.19
Effect of Diluted Securities:
Stock Options.............. -- 850 --
-------------------------------------
Diluted EPS.................$32,175 27,924 $1.15
-------------------------------------
For the year ended
December 31, 1996:
Basic EPS:
Income available to common
shareholders...............$28,699 26,937 $1.07
Effect of Diluted Securities:
Stock Options.............. -- 661 --
------------------------------------
Diluted EPS.................$28,699 27,598 $1.04
------------------------------------
</TABLE>
(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,
1998 and 1997 was $230.2 million and $223.8 million respectively. Approximately
five-eights of these commitments were for variable rate products at the end of
1998.
Letters of credit and 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, 1998 and 1997 was $2.0 million and
$7.7 million, respectively. No losses are anticipated as a result of loan
commitments or standby letters of credit.
(12) Fair Value of Financial Instruments
The fair values shown below represent management's estimates of values at
which the various types of financial instruments could be exchanged in
transactions between willing, unrelated parties. They do not necessarily
represent amounts that would be received or paid in actual trades of specific
financial instruments.
<TABLE>
(dollars in thousands) As of December 31, 1998
Carrying Fair
value value
<CAPTION>
Financial assets:
<S> <C> <C>
Cash and cash equivalents ......$ 424,929 424,929
Securities available for sale .. 717,410 717,410
Loans........................... 1,268,328 1,349,153
Accrued interest receivable..... 14,632 14,632
Financial liabilities:
Demand deposits ................ 154,358 154,358
Interest-bearing deposits ...... 1,953,056 1,960,520
Borrowings ..................... 147,924 147,924
Accrued interest payable........ 2,839 2,839
</TABLE>
<TABLE>
(dollars in thousands)........... As of December 31, 1997
Carrying Fair
value value
<CAPTION>
Financial assets:
<S> <C> <C>
Cash and cash equivalents ......$ 437,740 437,740
Securities available for sale .. 601,899 601,899
Loans........................... 1,244,821 1,333,220
Accrued interest receivable..... 15,821 15,821
Financial liabilities:
Demand deposits ................ 130,345 130,345
Interest-bearing deposits ...... 1,891,518 1,895,457
Borrowings ..................... 127,850 127,850
Accrued interest payable........ 3,132 3,132
</TABLE>
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 previous
table:
Cash and Cash Equivalents
The carrying value 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.
61
<PAGE>
Notes to Financial Statements(continued)
Deposit Liabilities
The fair values disclosed for noninterest bearing deposits, interest bearing
checking 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.
Short-Term Borrowings and Other Financial Instruments
The fair value of all short-term 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
standby 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 approximates the recorded amounts of the related fees, which are
considered to be immaterial.
The Company has no derivative investment products 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) Regulatory Capital Requirements
Office of the Comptroller of the Currency (OCC) capital regulations require
banks to maintain minimum levels of regulatory capital. Under the regulations in
effect at December 31, 1998 and 1997, the Bank was required to maintain a
minimum leverage ratio of Tier I (leverage) capital to total adjusted average
assets of 4.00% and minimum ratios of Tier I capital and total capital to risk
weighted assets of 4.00% and 8.00%, respectively. The Federal Reserve Board has
adopted similar requirements for the consolidated capital of bank holding
companies.
The regulations establish a framework for the classification of banks into
five categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized and critically under capitalized. Generally, an
institution is considered well capitalized if it has a Tier I (leverage) capital
ratio of at least 5.0% (based on total adjusted average assets), a Tier I risk
based capital ratio of at least 6.0%, and a total risk based capital ratio of at
least 10.0%.
The foregoing capital ratios are based on specific quantitative measures of
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the OCC about capital components, risk
weighting and other factors.
Management believes that, as of December 31, 1998 and 1997, the Bank and
Company met all capital adequacy requirements to which they were subject.
Further, the most recent OCC notification categorized the Bank as a well
capitalized institution. There have been no conditions or events since that
notification that management believes have changed the Bank's capital
classification.
Under its prompt corrective action regulations, the OCC is required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an undercapitalized institution. Such actions could have a direct
material effect on an institution's financial statements. As stated above, the
Company has been classified as well capitalized for regulatory purposes, and
therefore, these regulations do not apply.The following is a summary of actual
capital amounts and ratios as of December 31, 1998 and 1997 for the Bank and the
Company (on a consolidated basis):
<TABLE>
(dollars in thousands)........ As of December 31, 1998
<CAPTION>
Amount Ratio
Tier I (leverage) capital:
<S> <C> <C>
Trustco Bank, NA............ $148,077 6.13%
TrustCo Bank Corp NY........ 167,239 6.89
Tier I risk based capital:
Trustco Bank, NA............ 148,077 11.45
TrustCo Bank Corp NY........ 167,239 12.78
Total risk based capital:
Trustco Bank, NA............ 164,718 12.73
TrustCo Bank Corp NY........ 184,069 14.06
(dollars in thousands)........ As of December 31, 1997
Amount Ratio
Tier I (leverage) capital:
Trustco Bank, NA............ $143,935 6.22%
TrustCo Bank Corp NY........ 162,974 7.00
Tier I risk based capital:
Trustco Bank, NA............ 143,935 12.02
TrustCo Bank Corp NY........ 162,974 13.43
Total risk based capital:
Trustco Bank, NA............ 159,383 13.31
TrustCo Bank Corp NY........ 178,610 14.72
</TABLE>
62
<PAGE>
Notes to Consolidated Financial Statements(continued)
<TABLE>
(14) Parent Company Only
The following statements pertain to TrustCo Bank Corp NY (Parent Company):
<CAPTION>
Statements of Income
(dollars in thousands) Years Ended December 31,
Income: 1998 1997 1996
Dividends and interest
<S> <C> <C> <C>
from subsidiaries............$30,378 27,227 20,418
Gain on sale of securities... 862 -- --
Income from other investments 453 379 301
-----------------------------
Total income................. 31,693 27,606 20,719
-----------------------------
Expense:
Operating supplies.......... 78 98 120
Professional services ...... 17 33 222
Miscellaneous expense....... 107 110 308
-----------------------------
Total expense...... 202 241 650
-----------------------------
Income before income
taxes and undistributed
net income of subsidiaries.. 31,491 27,365 20,069
Income tax expense/(benefit).. 420 45 (98)
------------------------------
Income before equity in
undistributed net
income of subsidiaries...... 31,071 27,320 20,167
Equity in undistributed net
income of subsidiaries...... 3,944 4,855 8,532
------------------------------
Net income....................$35,015 32,175 28,699
------------------------------
</TABLE>
<TABLE>
Statements of Condition
(dollars in thousands) December 31,
<CAPTION>
Assets: 1998 1997
<S> <C> <C>
Cash in subsidiary bank..............$ 13,938 10,480
Noninterest bearing note receivable
from subsidiary.................... -- 1,117
Investments in subsidiaries.......... 156,660 152,692
Securities available for sale........ 29,889 26,205
Other assets......................... 304 463
-----------------------
Total assets................. $200,791 190,957
-----------------------
Liabilities and shareholders' equity:
Accrued expenses and other liabilities $ 14,949 12,132
-----------------------
Total liabilities............... 14,949 12,132
-----------------------
Shareholders' equity................... 185,842 178,825
Total liabilities and shareholders'
----------------------
equity.................................$ 200,791 190,957
----------------------
</TABLE>
<TABLE>
Statements of Cash Flows
(dollars in thousands) Years Ended December 31,
<CAPTION>
1998 1997 1996
Increase/(decrease) in cash and
cash equivalents:
Cash flows from operating activities:
<S> <C> <C> <C>
Net income........................... $35,015 32,175 28,699
------------------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net
income of subsidiaries.......... (3,944) (4,855) (8,532)
Gain on sales of securities... (862) -- --
(Increase)/decrease in other
assets................ 159 833 (874)
Increase/(decrease) in accrued
expenses............................ 24 14 (19)
------------------------------------
Total adjustments................... (4,623) (4,008) (9,425)
------------------------------------
Net cash provided by operating
activities.................. 30,392 28,167 19,274
------------------------------------
Cash flows from investing activities:
Proceeds from sale of securities
available for sale............. 3,530 -- --
Purchase of securities available
for sale....................... (1,761) (349) (253)
Decrease in noninterest bearing
note receivable from subsidiary . 1,117 -- 500
Net cash provided by/(used in)
-----------------------------------
investing activities......... 2,886 (349) 247
-----------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock
options........................... 895 1,624 935
Dividends paid..................... (25,671) (22,438) (19,447)
Payments to acquire treasury stock. (10,439) (7,735) (805)
Proceeds from sale of treasury
stock............................. 5,395 3,026 794
-----------------------------------
Net cash used in financing
activities.................... (29,820) (25,523) (18,523)
-----------------------------------
Net increase in cash and cash
equivalents................... 3,458 2,295 998
Cash and cash equivalents at
beginning of year................. 10,480 8,185 7,187
Cash and cash equivalents at
-----------------------------------
end of year.......................$ 13,938 10,480 8,185
-----------------------------------
Supplemental disclosure of
cash flow information:
Increase in dividends payable......$ 930 839 751
Equity contribution to subsidiary.. -- 1,000 1,000
Change in unrealized gain on
available for sale securities--
gross........................... (4,591) (9,891) (3,111)
Change in deferred tax effect on
unrealized gain on securities
available for sale 1,876 4,008 1,285
-----------------------------------
</TABLE>
63
<PAGE>
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
Retired Chairman
Power Technologies, Inc.
M. Norman Brickman
President
D. Brickman, Inc.
Anthony J. Marinello, M.D., Ph.D.
Physician
Robert A. McCormick
President and Chief Executive Officer
Trustco Bank
Nancy A. McNamara
Senior Vice President
Trustco Bank
John S. Morris, Ph.D.
Interim President,
New England College
James H. Murphy, D.D.S.
Orthodontist
Richard J. Murray, Jr.
Chief Executive Officer
R.J. Murray Co., Inc.
Kenneth C. Petersen
President and Chief Operating Officer
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
Directors of TrustCo Bank Corp NY are also Directors of Trustco Bank
HONORARY DIRECTORS
Charles W. Carl, Jr.
Caryl P. Haskins, Ph.D.
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.
64
<PAGE>
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
HUMAN RESOURCES AND
QUALITY CONTROL
Vice President
Cheri J. Parvis
ACCOUNTING/FINANCE,
DATA PROCESSING,
PREMISES
Senior Vice President and
Chief Financial Officer
Robert T. Cushing
ACCOUNTING/FINANCE
Vice Presidents
Linda C. Christensen
Jeffrey S. Farbaniec
DATA PROCESSING
Vice President
Michael R. Bonesteel
Senior Programming Officer
Nancy M. Holsberger
LOAN DIVISION,
TRUST DEPARTMENT,
MARKETING, AND
COMMUNITY RELATIONS
Senior Vice President
Nancy A. McNamara
LOAN DIVISION
COMMERCIAL/MORTGAGE
LOANS
Administrative Vice President
Robert J. McCormick
COMMERCIAL LOANS
Vice President
George W. Wickswat
Senior Commercial Loan Officer
Eric W. Schreck
Commercial Loan Officer
Deborah K. Appel
MORTGAGE LOANS
Vice President
Daniel R. Saullo
TRUST DEPARTMENT
Vice Presidents
William M. McCartan
James Niland
Robert Scribner
Trust Officers
John P. Fulgan
Richard W. Provost
Investment Officer
Peter L. Gregory
MARKETING
Marketing Officer
Robert M. Leonard
BRANCHES, INSTALLMENT
LOANS/CREDIT CARDS,
RETIREMENT/GOVERNMENT
ACCOUNTS, COMPLIANCE
Senior Vice President
Ralph A. Pidgeon
Vice Presidents
Kevin M. Curley
Scot R. Salvador
BRANCHES
Branch Officer
Thomas H. Lauster
COMPLIANCE
Vice President
Donald J. Csaposs
BANK OPERATIONS,
LEGAL COUNSEL,
PURCHASING,
TRUST OPERATIONS
Senior Vice President and
Secretary
William F. Terry
LEGAL COUNSEL
Administrative Vice President
Henry C. Collins
BANK/TRUST OPERATIONS
Administrative Vice President
James D. McLoughlin
Vice President
Ann M. Noble
65
<PAGE>
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
345 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
Cobleskill Office
RR #3, Rt. 7
Cobleskill
Telephone: 254-0290
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: 383-0039
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 4 Corners Office
2471 Route 9
Malta
Telephone: 899-1056
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 Rd
Suite 9,
Queensbury Office
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: 383-6850
South Glens Falls Office
Glengate Shopping Plaza
133 Saratoga Road,
Suite 1South
Glens Falls
Telephone: 793-7668
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
Ushers Road Office
308 Ushers Road
Ballston Lake
Telephone: 877-8069
West Sand Lake Office
3707 NY
Rt. 43
West Sand Lake
Telephone: 674-3327
Wilton Mall Office
Route 50
Saratoga Springs
Telephone: 583-1716
Wolf Road Office
34 Wolf Road
Albany
Telephone: 458-7761
Wynantskill Office
134-136 Main Street,
Rt. 66
Wynantskill
Telephone: 286-2674
66
<PAGE>
General Information
ANNUAL MEETING
Monday, May 17, 1999
10:00 AM
192 Erie Boulevard
Schenectady,NY 12305-1808
CORPORATE HEADQUARTERS
320 State Street
Schenectady, New York 12305-2356
(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 acts as administrator for this service, and is the agent
for shareholders in these transactions. Shareholders who want additional
information may contact the TrustCo Shareholder Services Department
(518-381-3601)
DIRECT DEPOSIT OF DIVIDENDS
Electronic deposit of dividends, which offers safety and convenience, is
available to TrustCo shareholders who wish to have dividends deposited directly
to personal checking, savings or other accounts. Electing direct deposit will
not affect the mailing of annual and quarterly reports and proxy materials. If
you would like to arrange direct deposit, please write the Corporate Secretary
at the corporate headquarters address listed on this page.
DUPLICATE MAILING NOTIFICATION
If you are a shareholder of record and are currently receiving multiple copies
of TrustCo's annual and quarterly reports, please contact the TrustCo
Shareholder Services Department at (518) 381-3601, or at the corporate
headquarters address listed on this page.
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. Request 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 Stock MarketSM under the
symbol TRST.
SUBSIDIARIES:
Trustco Bank, National Association ORE Subsidiary Corp Trustco Realty Corp.
Schenectady, New York Schenectady, New York Schenectady, New York
Member FDIC
TRANSFER AGENT
Trustco BankSecurities Department
P.O. Box 380
Schenectady, New York
12301-0380
Trustco Bank is a registered service mark with the U.S. Patent & Trademark
Office.
67
<PAGE>
Exhibits
Exhibit 21
LIST OF SUBSIDIARIES OF TRUSTCO
Trustco Bank, National Association.............. Nationally chartered
banking association
ORE Subsidiary Corp. New York corporation
Trustco Realty Corp. New York corporation
(Subsidiary of Trustco Bank,
National Association)
Each subsidiary does business under its own name. The activities of each are
described in Part I, Item 1 of Form 10-K.
68
<PAGE>
KPMG, LLP Exibit 23
515 Broadway
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), Form S-8 (No. 33-67176), Form S-8 (No. 33-60409), and Form
S-3 (No. 333-35153), of TrustCo Bank Corp NY and subsidiaries, of our report
dated January 22, 1999, relating to the consolidated statements of condition of
TrustCo Bank Corp NY and subsidiaries as of December 31, 1998 and 1997, 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,
1998, which report appears in the December 31, 1998 Annual Report on Form 10-K
of TrustCo Bank Corp NY.
/s/ KPMG LLP
March 19, 1999
69
<PAGE>
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 1998 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/Anthony J. Marinello
- -------------------------- ---------------------
M. Norman Brickman Dr. Anthony J. Marinello
/s/Robert A. McCormick /s/Nancy A. McNamara
- -------------------------- ---------------------
Robert A. McCormick Nancy A. McNamara
/s/Dr. John S. Morris /s/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
- --------------------------
William F. Terry
Sworn to before me this 16th day of February 1999.
/s/Joan Clark
- -------------------------
Notary Public
Joan Clark
Notary Public, State of New York
Qualified in Albany County
No. 01CL4822282
Commission Expires Nov. 30, 2000
70
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 41867
<INT-BEARING-DEPOSITS> 83
<FED-FUNDS-SOLD> 358000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 742389
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1322703
<ALLOWANCE> 54375
<TOTAL-ASSETS> 2485080
<DEPOSITS> 2107414
<SHORT-TERM> 147924
<LIABILITIES-OTHER> 43900
<LONG-TERM> 0
0
0
<COMMON> 27977
<OTHER-SE> 157865
<TOTAL-LIABILITIES-AND-EQUITY> 2,485,080
<INTEREST-LOAN> 110635
<INTEREST-INVEST> 40879
<INTEREST-OTHER> 22536
<INTEREST-TOTAL> 174,050
<INTEREST-DEPOSIT> 81596
<INTEREST-EXPENSE> 88347
<INTEREST-INCOME-NET> 85,703
<LOAN-LOSSES> 4610
<SECURITIES-GAINS> 998
<EXPENSE-OTHER> 48765
<INCOME-PRETAX> 54450
<INCOME-PRE-EXTRAORDINARY> 35015
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,015
<EPS-PRIMARY> 1.31 <F1>
<EPS-DILUTED> 1.25 <F2>
<YIELD-ACTUAL> 3.81
<LOANS-NON> 7147
<LOANS-PAST> 1454
<LOANS-TROUBLED> 3782
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 53455
<CHARGE-OFFS> 6561
<RECOVERIES> 2871
<ALLOWANCE-CLOSE> 54,375
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 54,375
<FN>
<F1> EPS is reported as "Basic EPS" as prescribed by Statement of Financial
Accounting Standards No. 128.
<F2> EPS is reported as "Diluted EPS" as prescribed by Statement of Financial
Accounting Standards No. 128.
</FN>
</TABLE>
