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
For the Fiscal Year Ended December 31, 1999
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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)
______________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes.(x) No.( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.[ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock:
Number of Shares Outstanding
Class of Common Stock as of March 10, 2000
$1 Par Value 53,454,924
The aggregate market value of registrant's common stock (based upon the closing
price on March 10, 2000) held by non-affiliates was approximately $601,367,895.
Documents Incorporated by Reference (1) Portions of registrant's Annual Report
to Shareholders for the fiscal year ended December 31, 1999 (Part I and Part II)
(2) Portions of registrant's Proxy Statement filed for its Annual Meeting of
Shareholders to be held May 15, 2000 (Part III).
<PAGE>
INDEX
Description Page
PART I
Item 1 Business 1
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security 6
Holders
PART II
Item 5 Market for the Registrant's Common Equity and 8
Related Stockholder Matters
Item 6 Selected Financial Data 8
Item 7 Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about 8
Market Risk
Item 8 Financial Statements and Supplementary Data 8
Item 9 Changes in and Disagreements with Accountants 8
On Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of Registrant 8
Item 11 Executive Compensation 9
Item 12 Security Ownership of Certain Beneficial Owners 9
And Management
Item 13 Certain Relationships and Related Transactions 9
PART IV
Item 14 Exhibits, Financial Statement Schedules, and 9
Reports on Form 8-K
EXHIBITS INDEX 16
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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. On
February 21, 2000, TrustCo entered into an agreement to acquire Landmark
Financial Corp, and its subsidiary, Landmark Community Bank, Canajoharie New
York, a federal savings bank with $26 million in assets as of December 31, 1999.
The transaction is expected to be completed in the third quarter of 2000.
Through policy and practice, TrustCo continues to emphasize that it is an equal
opportunity employer. There were 451 full-time equivalent employees of TrustCo
at year-end 1999. TrustCo had 11,252 shareholders of record as of December 31,
1999, and the closing price of the TrustCo common stock at that date was $13.25.
Bank Subsidiary
TrustCo's banking subsidiary, Trustco Bank, National Association (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 1999 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 $1.37 billion as of
December 31, 1999.
The daily operations of the Bank remain the responsibility of its Board of
Directors and officers, subject to the overall supervision by TrustCo. TrustCo
derives most of its income from dividends paid to it by its subsidiary Bank. The
accounts of the Bank are included in TrustCo's consolidated financial
statements.
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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.
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
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for the year ended December 31, 1999, which appears on pages 32 and 33 thereof
and contains information concerning restrictions of TrustCo's ability to pay
dividends, is hereby incorporated by reference.) In addition, the 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, 1999, which
appears on page 41 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 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
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shareholders.
The Gramm-Leach-Bliley Act was signed into law on November 12, 1999. This major
banking legislation expands the permissible activities of bank holding companies
such as TrustCo by permitting them to engage in activities, or affiliate with
entities that engage in activities, that are "financial in nature." Activities
that the act expressly deems to be financial in nature include, among other
things, securities and insurance underwriting and agency, investment management
and merchant banking. The Federal Reserve and the Treasury Department, in
cooperation with one another, must determine what additional activities are
"financial in nature." With certain exceptions, the Gramm-Leach-Bliley Act
similarly expands the authorized activities of subsidiaries of national banks.
The provisions of the Gramm-Leach-Bliley Act authorizing the expanded powers
became effective March 11, 2000.
Bank holding companies that intend to engage in the newly authorized activities
must elect to become "financial holding companies." Financial holding company
status is only available to a bank holding company if all of its affiliated
depository institutions are "well capitalized" and "well managed," based on
applicable banking regulations, and have a Community Reinvestment Act rating of
at least "a satisfactory record of meeting community credit needs." Financial
holding companies and banks may continue to engage in activities that are
financial in nature only if they continue to satisfy the well capitalized and
well managed requirements. Bank holding companies that do not elect to be
financial holding companies or that do not qualify for financial holding company
status may engage only in non-banking activities deemed "closely related to
banking" prior to adoption of the Gramm-Leach-Bliley Act.
The Act also calls for "functional regulation" of financial services businesses
in which functionally regulated subsidiaries of bank holding companies will
continue to be regulated by the regulator that ordinarily has supervised their
activities. As a result, state insurance regulators will continue to oversee the
activities of insurance companies and agencies, and the Securities and Exchange
Commission will continue to regulate the activities of broker-dealers and
investment advisers, even where the companies or agencies are affiliated with a
bank holding company. Federal Reserve authority to examine and adopt rules
regarding functionally regulated subsidiaries is limited. The Act repeals some
of the exemptions enjoyed by banks under federal securities laws relating to
securities offered by banks and licensing of broker-dealers and investment
advisers.
The Gramm-Leach-Bliley Act imposes a new, "affirmative and continuing"
obligation on all financial service providers (not just banks and their
affiliates) to safeguard consumer privacy and requires federal and state
regulators, including the Federal Reserve and the FDIC, to establish standards
to implement this privacy obligation. With certain exceptions, the Act prohibits
banks from disclosing to non-affiliated parties any non-public personal
information about customers unless the bank has provided the customer with
certain information and the customer has had the opportunity to prohibit the
bank from sharing the information with non-affiliates. The new privacy
obligations become effective six months after the federal banking agencies adopt
regulations establishing the privacy standards.
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Finally, the Act prevents companies engaged in commercial activities from
acquiring savings institutions, requires public disclosure of any agreements
between a depository institution and community groups regarding the
institution's Community Reinvestment Act record, adopts amendments designed to
modernize the Federal Home Loan Bank System and requires operators of automatic
teller machines to disclose any fees charged to non-customers that use the
machines.
The Gramm-Leach-Bliley Act will be the subject of extensive rule making by
federal banking regulators and others. The effects of this legislation will only
begin to be understood over the next several years and at this time cannot be
predicted with any certainty.
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 25 of TrustCo's
Annual Report to Shareholders for the year ended December 31, 1999, 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, 1999,
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
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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.
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, 1995 of TrustCo
- -------------------------------------------------------------------------------
Robert A. McCormick, 63, President and Chief Executive Officer, 1981
President and Trustco Bank Corp NY since 1982.
Chief Executive Officer President and Chief Executive Officer,
Trustco Bank, National Association
since 1984. Director of Trustco Bank
Corp NY since 1981 and Trustco Bank,
National Association since 1980.
Robert T. Cushing, 44, Vice President and Chief Financial 1994
Vice President and Officer, Trustco Bank Corp NY since 1994.
Chief Financial Officer Senior Vice President and Chief
Financial Officer, Trustco Bank,
National Association since 1994.
Nancy A. McNamara, 50, Vice President, TrustCo Bank Corp NY 1992
Vice President since 1992. Senior Vice President,
Trustco Bank, National Association
since 1988. Director of Trustco Bank
Corp NY and Trustco Bank, National
Association since 1991.
William F. Terry, 58 Secretary, TrustCo Bank Corp NY since 1990
Secretary 1990. Senior Vice President, Trustco
Bank, National Association since 1987.
Secretary, Trustco Bank, National
Associ-ation since 1990. Director of
Trustco Bank, National Association since
1991.
Ralph A. Pidgeon, 57, 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.
Retired January 3, 2000.
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 46 of TrustCo's Annual Report to Shareholders for the year ended
December 31, 1999, are incorporated herein by reference. TrustCo had 11,517
shareholders of record as of March 10, 2000, and the closing price of the
Corporation's common stock on that date, was $11.25.
Item 6. Selected Financial Data
Page 24 of TrustCo's Annual Report to Shareholders for the year ended December
31, 1999, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 6 through 25 of TrustCo's Annual Report to Shareholders for the year ended
December 31, 1999, 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, 1999, 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
30 through 42 of TrustCo's Annual Report to Shareholders for the year ended
December 31, 1999, 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 20 of TrustCo's Proxy Statement filed for its Annual Meeting of
Shareholders to be held May 15, 2000, 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 15,
2000, 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 19 of TrustCo's Proxy Statement filed for its Annual Meeting of
Shareholders to be held May 15, 2000, 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 20 of TrustCo's Proxy
Statement filed for its Annual Meeting of Shareholders to be held May 15, 2000
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, 1999 and 1998.
Consolidated Statements of Income -- Years Ended December 31, 1999, 1998,
and 1997.
Consolidated Statements of Changes in Shareholders' Equity -- Years Ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows -- Years Ended December 31, 1999,
1998, and 1997.
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.
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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.
________________
*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, 1999.
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, 1999, TrustCo filed a Current Report on Form 8-K reporting the
November 16, 1999 declaration of a cash dividend.
On January 18, 2000, TrustCo filed a Current Report on Form 8-K reporting the
fourth quarter and year-end December 31, 1999, results.
On February 15, 2000, TrustCo filed a Current Report on Form 8-K reporting the
declaration of a cash dividend.
On February 22, 2000, TrustCo filed a Current Report on Form 8-K reporting the
February 21, 2000 announcement of a Merger Agreement between TrustCo Bank Corp
NY and Landmark Financial Corp.
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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 22, 2000
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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 March 22, 2000
Barton A. Andreoli
* Director March 22, 2000
Lionel O. Barthold
* Director March 22, 2000
M. Norman Brickman
* Director March 22, 2000
Joseph Lucarelli
* Director March 22, 2000
Dr. Anthony J. Marinello
* Director March 22, 2000
Robert A. McCormick
* Director March 22, 2000
Nancy A. McNamara
* Director March 22, 2000
Dr. John S. Morris
* Director March 22, 2000
Dr. James H. Murphy
* Director March 22, 2000
Richard J. Murray, Jr.
* Director March 22, 2000
Kenneth C. Petersen
* Director March 22, 2000
William D. Powers
* Director March 22, 2000
William J. Purdy
Director March 22, 2000
William F. Terry By: /s/ William F. Terry
*William F. Terry, as Agent
Pursuant to Power of Attorney
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Reg S-K
Item 601
Exhibits Index
Exhibit No. Exhibit Page
No.
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.
16
<PAGE>
Reg S-K
Item 601
Exhibit No. Exhibit Page
No.
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.
17
<PAGE>
Exhibits Index
Reg S-K
Item 601
Exhibit No. Exhibit Page
No.
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.
18
<PAGE>
Exhibits Index
Reg S-K
Item 601
Exhibit No. Exhibit Page
No.
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 Exhibit 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 Exhibit 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.
19
<PAGE>
Exhibits Index
Reg S-K
Item 601
Exhibit No. Exhibit Page
No.
11 Computation of Net Income Per Common Share. Note 10 on 60
page 40 of TrustCo's Annual Report to Shareholders for
the year ended December 31, 1999, is incorporated herein
by reference.
13 Portions of Annual Report to Security Holders of TrustCo 21
for the year ended December 31, 1999, are filed herewith.
GRAPHICS APPENDIX
Cross
Reference
To Page
Of Annual
Omitted Charts Report
----------------------------------------------------------------------
1 Return on Equity 6
2 Taxable Equivalent Net Interest 8
Income
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.
21 List of Subsidiaries of TrustCo, filed herewith 71
23 Independent Auditors' Consent of KPMG, LLP 72
filed herewith.
24 Power of Attorney, filed herewith. 73
27 Financial Data Schedules, filed herewith. 74
20
<PAGE>
Trustco Bank Corp NY
Annual Report
21
<PAGE>
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 47 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
1999 1998 Change
Income:
<S> <C> <C> <C>
Net interest income (TE)...................................................... $ 97,195 89,117 9.06%
Net income.................................................................... 38,185 35,015 9.05
Per Share (1):
Basic earnings................................................................ 0.71 0.65 9.23
Diluted earnings.............................................................. 0.68 0.63 7.94
Book value.................................................................... 3.11 3.47 (10.37)
Average Balances:
Assets........................................................................ 2,411,195 2,433,238 (0.91)
Loans, net.................................................................... 1,329,458 1,311,967 1.33
Deposits...................................................................... 2,043,149 2,068,725 (1.24)
Shareholders' equity.......................................................... 179,484 180,103 (0.34)
Financial Ratios:
Return on average assets...................................................... 1.58% 1.44 9.72
Return on average equity (2).................................................. 22.52 21.47 4.89
Tier 1 capital to:
Total average assets (leverage)............................................ 7.15 6.89 3.77
Risk-adjusted assets....................................................... 13.55 12.78 6.03
Total capital to risk-adjusted assets......................................... 14.84 14.06 5.55
Net loans charged off to average loans........................................ .27 .28 (3.57)
Allowance for loan losses as a coverage of nonperforming loans................ 5.6x 4.4x 28.13
Efficiency ratio.............................................................. 38.62 40.26 4.07
Dividend payout ratio......................................................... 79.16 75.97 4.20
</TABLE>
<TABLE>
---------------------------------------
Per share information of common stock (1)
<CAPTION>
Range of Stock
Basic Diluted Cash Book Price
Earnings Earnings Dividend Value High Low
1998
<S> <C> <C> <C> <C> <C> <C>
First quarter............................................. $.16 .15 .12 3.43 12.88 10.60
Second quarter............................................ .16 .16 .12 3.43 12.99 11.20
Third quarter............................................. .17 .16 .12 3.47 13.59 10.82
Fourth quarter............................................ .16 .16 .14 3.47 15.00 11.41
------------------------------------------------------------
1999
First quarter............................................. .17 .17 .14 3.44 15.00 12.47
Second quarter............................................ .18 .17 .14 3.29 14.50 12.50
Third quarter............................................. .19 .18 .14 3.21 15.28 13.32
Fourth quarter............................................ .18 17 .15 3.11 15.44 12.75
------------------------------------------------------------
(1) Adjusted for a 2 for 1 stock split in 1999 and a 15% stock split in 1998.
(2) Excludes the market adjustment on securities available for sale.
</TABLE>
22
<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 25
Management's Statement of Responsibilities 26
Independent Auditors' Report 27
Consolidated Financial Statements and Notes 28
Officers and Board of Directors 43
Officers of Trustco Bank 44
Branch Locations 45
General Information 46
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.
23
<PAGE>
Executive and Senior Officers of Trustco Bank
Executive Officers: Standing from Left to Right: Robert T. Cushing, Senior Vice
President and Chief Financial Officer, Bank/Trust Operations,
Accounting/Finance, Purchasing; Nancy A. McNamara, Senior Vice President, Branch
Administration, Retirement/Government Accounts, Trust Department, Marketing and
Community Relations; William F. Terry, Senior Vice President, Data Processing,
Legal Counsel. Seated: Robert A. McCormick, President and Chief Executive
Officer.
Senior Officers: Standing Left to Right: Linda C. Christensen, Vice President,
Accounting/Finance; Jeffrey S. Farbaniec, Vice President, Robert Scribner, Vice
President, Trust Department; George W. Wickswat, Vice President, Commercial
Loans; Scot R. Salvador, Vice President, Branch Administration; William M.
McCartan, Administrative Vice President, Trust Department; Robert J. McCormick,
Administrative Vice President, Loan Division, Installment Loans/Credit Cards,
Premises; Seated Left to right: Ann M. Noble, Vice President, Bank Operations;
Patrick S. LaPorta, Vice President, Trust Department; Donald J. Csaposs, Vice
President, Compliance; Henry C. Collins, Administrative Vice President, Legal
Counsel; Kevin M. Curley, Vice President, Bank Operations; John C. Fay, Auditor;
Cheri J. Parvis, Vice President, Human Resources.
24
<PAGE>
President's Message
Dear Shareholder:
1999 was another record year at TrustCo. Although others in our industry
did well, few can match the TrustCo record of sustained superior performance. We
thank our Directors and employees for their contributions in achieving this
result.
Net income of $38.2 million was 9% greater than the net income produced in
1998. Return on average equity (ROE), our most important measurement, was 22.5%
for 1999, an increase from 21.5% in 1998. TrustCo's enviable five-year ROE was
20.3%, and we have aggressive plans to produce a 23% ROE in 2000.
TrustCo's world-class efficiency ratio was 38.6% for 1999, compared to
40.3% for 1998. This measurement is one of the best tests to identify effective
expense controls and productivity.
During the fourth quarter of 1999, shareholders received a two for one
stock split and a 9% increase in cash dividends. The quarterly cash dividend has
increased at an 18.5% compound annual rate over the last ten years, resulting in
TrustCo's recognition in Mood's 1999 Handbook of Dividend Achievers as one of
334 companies of a universe of 10,000 U.S.-based firms providing increased
dividend payments over the past ten consecutive years.
We have often discussed our philosophy of returning any excess capital to
the shareholders, while maintaining sufficient capital to meet the regulatory
definition of "well capitalized." Therefore, in 1999, 79% of net income was
paid to shareholders in cash dividends.
As the result of an enormous effort by the staff, TrustCo's customers were
not impacted by any inconveniences relating to the Y2K issue.
During 1999, the average balance of total assets at TrustCo decreased by
$22 million to $2.4 billion. For 1999, we developed a plan to eliminate a
significant percentage of the high cost deposits that had accumulated in the
Bank, while at the same time increasing our overall net interest margin. We
decreased deposits on average by $26 million during 1999 by changing our deposit
pricing philosophy, and increased our net interest margin by 35 basis points to
4.16% for the year. The increased margin was especially important because it
resulted from 63 basis points reduction in deposit cost and an increase in the
relative balance of our funds invested in higher yielding investments and loans
in 1999 versus 1998. The increase in net interest margin resulted in an increase
in the taxable equivalent net interest income of $8.1 million for 1999.
The quality of the loan portfolio continues to be excellent, with the
coverage ratio (allowance for loan losses divided by total nonperforming loans)
increasing from 4.4 times at December 31, 1998 to 5.6 times at December 31,
1999, while the residential loan portfolio grew by $21 million.
On January 3, 2000, Ralph A. Pidgeon, Senior Vice President of Trustco
Bank, retired. Ralph served the companies well for over thirty-five years. Most
recently, he was in charge of deposit gathering, branch administration, and
several other functions. He will be missed.
25
<PAGE>
President's Message (continued)
While our retail product emphasis on our traditional deposit and loan
banking services will continue, we recognize the growing number of our customers
who are seeking service delivery through the Internet. Previously, we announced
a new division of Trustco Bank, TrustcoBankUSA, to be our vehicle for electronic
service delivery. We are presently on schedule to offer an Internet-based
service during the first half of 2000. Initially, TrustcoBankUSA will focus on
providing deposit products and bill paying services to new customers interested
in web access.
During the past year, we developed plans that include the establishment of
a subsidiary with a charter that would allow us to move more easily into new
geographies. We also identified the initial locations that would provide the
company significant growth potential.
During 1999, we pursued various merger opportunities which culminated in
the February 21, 2000 announcement of the signing of a merger agreement with
Landmark Financial Corp. Once completed, this acquisition extends our market
coverage into western Montgomery County. Our plans are that Landmark will remain
a separate subsidiary of TrustCo and expand its operations. We look forward to
welcoming the Landmark employees to our staff.
Our Trust Department, currently managing $1.37 billion, continues to
prosper. We have identified significant potential for increased revenue
generation from this function, and the 16% increase in 1999 gross revenue from
1998 demonstrates the progress made to date.
Our community relations efforts have become more effective. Our staff
involvement with hundreds of nonprofit agencies throughout our market area,
coupled with financial support from TrustCo, has received increased public
awareness.
I continue to be very enthusiastic about the vitality of the Company and
the prospects for future increases in shareholder value.
Sincerely,
/S/Robert A. Mccormick
- ----------------------
Robert A. McCormick,
President and Chief Executive Officer
26
<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 1999 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 1999 should be read in conjunction with this review. Certain amounts in
years prior to 1999 have been reclassified to conform with the 1999
presentation.
All per share information has been adjusted for the two for one stock split
in 1999.
Overview
TrustCo recorded net income of $38.2 million or $0.68 of diluted earnings
per share for the year ended December 31, 1999, compared to $35.0 million or
$0.63 per share for the year 1998. This represents an increase of 9.1% in net
income between 1999 and 1998.
During 1999 the following had a significant effect on net income:
- an increase of 35 basis points in net interest margin from 3.81% in 1998
to 4.16% in 1999, resulting in an increase in taxable equivalent net
interest income of $8.1 million,
- a 10.5% increase in the average balance of noninterest bearing demand
deposits to $153.4 million for 1999,
- a $3.1 million reduction in noninterest expense between 1998 and 1999,
- a $3.2 million reduction in interest earning assets between 1998 and 1999,
and
- a reduction of $260 thousand in recurring noninterest income.
<TABLE>
Return on Equity
(CHART OMITTED)
<CAPTION>
<S> <C>
1997 20.23%
1998 21.47%
1999 22.52%
</TABLE>
TrustCo has performed well with respect to a number of key performance
ratios during 1999 and 1998, including:
- return on equity of 22.52% for 1999 and 21.47% for 1998,
- return on assets of 1.58% for 1999 and 1.44% for 1998, and
- operating efficiency ratio of 38.62% for 1999 and 40.26% for 1998.
<TABLE>
MIX OF AVERAGE EARNING ASSETS
(dollars in thousands) Components of
<CAPTION>
99-98 98-97 Total Earning Assets
1999 1998 1997 Change Change 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income..... $1,329,458 1,311,967 1,260,771 17,491 51,196 56.9% 56.1 57.2
Securities available for sale:
U.S. Treasuries and agencies.... 172,411 204,694 352,301 (32,283) (147,607) 7.4 8.7 16.0
States and political subdivisions 134,447 112,077 102,206 22,370 9,871 5.7 4.8 4.6
Mortgage-backed securities...... 242,217 186,239 134,509 55,978 51,730 10.4 8.0 6.1
Other........................... 134,715 108,947 33,985 25,768 74,962 5.8 4.7 1.5
Total securities available -----------------------------------------------------------------------------------------
for sale....................... 683,790 611,957 623,001 71,833 (11,044) 29.3 26.2 28.2
-----------------------------------------------------------------------------------------
Federal funds sold................ 321,422 414,162 320,953 (92,740) 93,209 13.8 17.7 14.6
Other short-term investments...... 1,012 752 -- 260 752 -- -- --
-----------------------------------------------------------------------------------------
Total earning assets.............. $2,335,682 2,338,838 2,204,725 (3,156) 134,113 100.0% 100.0 100.0
-----------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Management's Discussion and Analysis (continued)
The average balance of interest bearing deposits decreased from $1.93
billion in 1998 to $1.89 billion in 1999, a decrease of $40.2 million or 2.1%.
This decrease is the result of a plan during 1999 to reduce the balances of high
yield deposit accounts that had accumulated in the Bank over the last several
years. The strategic decision was to reduce these deposits during 1999 to better
focus on core deposit relationships. As a result of executing this strategy the
deposit balances decreased. However, the average cost of deposits also decreased
by 63 basis points to 3.60% between 1998 and 1999. This resulted in the total
cost of interest bearing liabilities decreasing to 3.63%, resulting in an
overall increase in net interest spread and net interest margin.
Additional funds were also deployed during 1999 into the loan and
securities portfolio, away from the lower yielding overnight investments. The
Company had been maintaining additional liquidity in the form of overnight
investments during 1998 and 1997 to be in a position to make additional
investments once market interest rates began to rise. During 1999 such an
opportunity became available in the marketplace as interest rates increased on
loans and investments. The average balance of the loan portfolio increased by
$17.5 million and the securities portfolio increased by $71.8 million.
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 96.9% and
96.1% of average total assets for 1999 and 1998, 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 with both 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 1999 were $2.34 billion, which was a
decrease of $3.2 million from the prior year. The decrease in the average
balance of earning assets was a result of growth in the average balance of loans
and securities, offset by a $92.7 million reduction in the average balance of
federal funds sold.
Total average assets were $2.41 billion for 1999 and $2.43 billion for
1998.
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 also have a
significant impact on income levels.
<TABLE>
Loan portfolio
(dollars in thousands) Average Balances
<CAPTION>
1999 1998 1997 1996 1995
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential.................. $ 975,803 73.3% $937,094 71.4% $848,105 67.2% $783,094 63.7% $714,804 60.1%
Commercial................... 189,407 14.3 189,542 14.4 204,502 16.2 224,949 18.3 237,165 19.9
Home equity line of credit... 141,488 10.6 158,939 12.1 178,597 14.1 187,652 15.3 202,647 17.0
Installment.................. 23,725 1.8 27,530 2.1 30,931 2.5 33,299 2.7 35,269 3.0
----------------------------------------------------------------------------------------------------
Total loans.................. $1,330,423 100.0% 1,313,105 100.0% 1,262,135 100.0% 1,228,994 100.0% 1,189,885 100.0%
----------------------------------------------------------------------------------------------------
Less:Unearned income......... 965 1,138 1,364 1,587 1,956
Allowance for loan losses 56,449 55,208 53,173 51,233 45,086
----------------------------------------------------------------------------------------------------
Net loans.................... $1,273,009 1,256,759 1,207,598 1,176,174 1,142,843
----------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Tax Equivalent Net Interest Income (dollars in millions)
(CHART OMITTED)
<CAPTION>
<S> <C>
1997 $88.7
1998 $89.1
1999 $97.2
</TABLE>
Loans: Average total loans increased $17.5 million, or 1.3%, during 1999.
Interest income on the loan portfolio decreased to $106.9 million in 1999 from
$111.0 million in 1998. The average yield decreased from 8.46% in 1998 to 8.04%
in 1999.
The steady growth of the loan portfolio as a component of the Company's
assets contributed significantly to the superior earnings results for 1999.
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 $975.8 million, an increase of $38.7 million, or 4.1%.
Income on residential real estate loans increased to $76.0 million in 1999 from
$75.5 million in 1998. The yield on this loan portfolio decreased to 7.79% for
1999 from 8.05% in 1998 due to general changes on retail rates in the
marketplace.
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 1999, management continued its established
practice of retaining all new loan originations in the Bank's portfolio rather
than selling them in 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 of $189.4 million in 1999 remained virtually equal
to the $189.5 million for 1998. The average yield on the commercial loan
portfolio decreased to 8.84% for 1999 compared to 9.40% for 1998. This resulted
in income on commercial loans of $16.8 million in 1999 and $17.8 million in
1998. TrustCo strives to maintain strong asset quality in all aspects of its
loan portfolio, especially with respect to commercial loans. Competition for
commercial loans continues to be 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.
TrustCo's commercial lending activities are focused on balancing the
Company's commitment to meeting the credit needs of business in its market
area with the necessity of managing its credit risk. 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
businesses located in the Bank's market area.
TrustCo has a long-standing leadership position in the home equity credit
line product in its market area. 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 1999 the average balance of home equity credit lines was
$141.5 million, down from $158.9 million in 1998. The home equity credit line
product has developed into 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
product and adjusts the Bank's offerings to remain competitive. The average
yield decreased to 7.95% for 1999 from 9.02% in 1998. This decrease resulted in
interest income on home equity credit lines of $11.2 million in 1999, compared
to $14.3 million in 1998.
The average balance of installment loans, net of unearned income,decreased
to $22.8 million in 1999 from $26.4 million in 1998. The yield on installment
loans increased 19 basis points to 12.87% in
29
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
(dollars in thousands) December 31, 1999
<CAPTION>
After 1 Year
In 1 Year But Within After
or Less 5 Years 5 Years Total
<S> <C> <C> <C> <C>
Commercial........................................... $ 90,778 62,554 40,198 193,530
Real estate construction............................. 15,867 -- -- 15,867
--------------------------------------------------------------
Total................................................ $106,645 62,554 40,198 209,397
--------------------------------------------------------------
Predetermined rates.................................. $ 46,076 61,995 40,198 148,269
Floating rates....................................... 60,569 559 -- 61,128
--------------------------------------------------------------
Total................................................ $106,645 62,554 40,198 209,397
--------------------------------------------------------------
</TABLE>
1999, resulting in interest income of $2.9 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.
Securities available for sale: 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, 1999, securities available for sale amounted to $640.8
million, compared to $717.4 million at year end 1998. For 1999, the average
balance of securities available for sale was $683.8 million with an average
yield of 7.05%, compared to an average balance in 1998 of $612.0 million with an
average yield of 7.18%. During the latter half of 1999, market interest rates on
investment securities were beginning to recover from historic lows experienced
in 1998 and the early parts of 1999. This created a situation wherein
reinvestment opportunities were generally at lower interest rates than those on
maturing securities. The impact was the reduction in the overall yield on the
securities portfolio during 1999 compared to 1998.
The taxable equivalent income earned on the securities portfolio in 1999
was $48.2 million, compared to $43.9 million earned in 1998. The average balance
of the securities portfolio increased by $71.8 million between 1998 and 1999,
while the average yield on the portfolio decreased by 13 basis points during the
same time period.
During 1999, TrustCo recognized approximately $5.4 million of net losses
from securities transactions, compared to approximately $1 million of net gains
in 1998. Throughout 1999, 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 1999, TrustCo continued to have significant liquidity in the form of
$266.0 million of federal funds sold and $10.0 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 2000.
TrustCo has not invested in any exotic investment products such as interest
rate swaps, forward placement contracts, 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, 1999 and 1998, the market value of
TrustCo's portfolio of securities available for sale produced net unrealized
gains/(losses) of approximately ($4.1) million and $31.5 million, respectively.
During 1999 and 1998, the Bank invested in short-term asset-backed
securities as a means of supplementing the income from other short-term
investments.
30
<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>
<CAPTION>
Securities available for sale
(dollars in thousands) As of December 31,
1999 1998 1997
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and agencies................. $189,207 185,978 163,244 167,825 273,517 278,823
States and political subdivisions............ 136,203 132,560 124,390 129,745 109,210 113,787
Mortgage-backed securities................... 211,450 205,558 246,531 249,489 151,989 155,080
Other........................................ 81,834 80,732 126,183 126,348 15,430 15,451
------------------------------------------------------------------------
Total debt securities available for sale... 618,694 604,828 660,348 673,407 550,146 563,141
Equity securities............................ 26,274 36,002 25,610 44,003 24,955 38,758
------------------------------------------------------------------------
Total securities available for sale........ $644,968 640,830 685,958 717,410 575,101 601,899
</TABLE>
The table "Securities Portfolio Maturity Distribution and Yield,"
distributes the securities available for sale portfolio as of December 31, 1999
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, 1999
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........................ $ 9,801 4,994 169,412 5,000 189,207
Market value.......................... 9,791 4,994 166,373 4,820 185,978
Weighted average rate................. 5.45% 6.32 7.48 7.54 7.34
States and political subdivisions
Amortized cost........................ $ 5,107 4,040 5,181 121,875 136,203
Market value.......................... 5,148 4,089 5,211 118,112 132,560
Weighted average rate................. 7.71% 7.85 8.19 8.20 8.17
Mortgage-backed securities
Amortized cost........................ $ 53 36,178 142,996 32,223 211,450
Market value.......................... 53 35,084 139,675 30,746 205,558
Weighted average rate................. 6.50% 6.86 7.16 6.61 7.03
Other
Amortized cost........................ $33,843 47,991 -- -- 81,834
Market value.......................... 33,640 47,092 -- -- 80,732
Weighted average rate................. 6.35% 6.23 -- -- 6.28
-------------------------------------------------------------------------------
Total debt securities available for sale
Amortized cost........................ $48,804 93,203 317,589 159,098 618,694
Market value.......................... 48,632 91,259 311,259 153,678 604,828
Weighted average rate................. 6.31% 6.55 7.35 7.86 7.28
-------------------------------------------------------------------------------
</TABLE>
31
<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 interest 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, 1999. 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, 1999
Based on Based on
Final Maturity Call Date
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Within 1 year.................................................... $ 48,804 48,632 143,475 140,790
1 to 5 years..................................................... 93,203 91,259 190,110 186,470
5 to 10 years.................................................... 317,589 311,259 243,014 237,066
After 10 years................................................... 159,098 153,678 42,095 40,502
-------------------------------------------------------
Total debt securities available for sale....................... $618,694 604,828 618,694 604,828
-------------------------------------------------------
</TABLE>
Federal funds sold: During 1999, the average balance of federal funds sold was
$321.4 million, a $92.7 million decrease from $414.2 million in 1998. The
average rate earned on these assets was 4.99% in 1999 and 5.44% in 1998. TrustCo
utilizes this category of earning assets as a means of maintaining strong
liquidity as interest rates change. Rather than invest excess liquidity during
1999, the Company chose to place these funds in overnight federal funds sold.
This decision had the short-term effect of suppressing earnings for 1999, but
positioned TrustCo to take advantage of other banking opportunities as they
emerge in 2000.
The decrease in average yield during 1999 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. During 1999, the
Federal Reserve Bank began a process of increasing rates on federal funds which
eventually established a target rate of 5.50% at December 31, 1999.
32
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Average Balances, Yields and Net Interest Margins
<CAPTION>
(dollars in thousands) 1999 1998 1997
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........ $1,329,458 106,933 8.04% 1,311,967 110,952 8.46% 1,260,771 109,690 8.70%
-------------------------------------------------------------------------------------
Securities available for sale:
U.S. Treasuries and agencies....... 172,411 12,530 7.27 204,694 15,408 7.53 352,30 1 27,436 7.79
States and political subdivisions.. 134,447 10,724 7.98 112,077 9,056 8.08 102,206 8,249 8.07
Mortgage-backed securities......... 242,217 16,322 6.74 186,239 12,692 6.81 134,509 10,094 7.50
Other.............................. 134,715 8,613 6.39 108,947 6,781 6.22 33,985 1,975 5.81
-------------------------------------------------------------------------------------
Total securities available for sale 683,790 48,189 7.05 611,957 43,937 7.18 623,001 47,754 7.67
-------------------------------------------------------------------------------------
Federal funds sold 321,422 16,031 4.99 414,162 22,536 5.44 320,953 17,761 5.53
Other short-term investments......... 1,012 55 5.41 752 39 5.17 -- -- --
-------------------------------------------------------------------------------------
Total interest earning assets...... 2,335,682 171,208 7.33% 2,338,838 177,464 7.59% 2,204,725 175,205 7.95%
-------------------------------------------------------------------------------------
Allowance for loan losses.............. (56,449) (55,208) (53,173)
Cash and noninterest earning assets.. 131,962 149,608 151,046
-------------------------------------------------------------------------------------
Total assets....................... $2,411,195 2,433,238 2,302,598
-------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Interest bearing deposits:
Interest bearing checking accounts. $ 264,742 2,818 1.06% 243,888 3,585 1.47% 233,644 3,596 1.54%
Savings............................ 661,888 17,887 2.70 657,793 20,382 3.10 658,750 22,622 3.43
Time deposits and money markets.... 963,145 47,336 4.91 1,028,258 57,629 5.60 967,864 54,728 5.65
-------------------------------------------------------------------------------------
Total interest bearing deposits.... 1,889,775 68,041 3.60 1,929,939 81,596 4.23 1,860,258 80,946 4.35
-------------------------------------------------------------------------------------
Short-term borrowings.................. 146,667 5,972 4.07 143,337 6,751 4.71 117,184 5,574 4.76
-------------------------------------------------------------------------------------
Total interest bearing liabilities. 2,036,442 74,013 3.63% 2,073,276 88,347 4.26% 1,977,442 86,520 4.38%
-------------------------------------------------------------------------------------
Demand deposits...................... 153,374 138,786 120,965
Other liabilities...................... 41,895 41,073 36,918
Shareholders' equity.................. 179,484 180,103 167,273
-------------------------------------------------------------------------------------
Total liabilities and shareholders'equity $2,411,195 2,433,238 2,302,598
-------------------------------------------------------------------------------------
Net interest income.................... 97,195 89,117 88,685
Net interest spread.................... 3.70% 3.33% 3.57%
Net interest margin (net interest income
to total interest earning assets).... 4.16 3.81 4.02
</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 1999, 1998, and 1997.
The average balances of securities available for sale were calculated using
amortized costs for these securities. Included in the balance of shareholders'
equity is $9.9 million, $17.0 million, and $8.2 million in 1999, 1998, and 1997,
respectively, of unrealized appreciation, net of tax, in the available for sale
securities portfolio. Nonaccrual loans are included in average loans.
33
<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
99-98 98-97 Total Funding
1999 1998 1997 Change Change 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits........................ $ 153,374 138,786 120,965 14,588 17,821 7.0% 6.3 5.8
Retail deposits:
Savings.............................. 661,888 657,793 658,750 4,095 (957) 30.2 29.7 31.4
Time deposits under $100 thousand.... 785,151 841,915 806,866 (56,764) 35,049 35.9 38.1 38.5
Interest bearing checking accounts... 264,742 243,888 233,644 20,854 10,244 12.1 11.0 11.1
Money market deposits................ 59,953 56,754 59,707 3,199 (2,953) 2.7 2.6 2.8
-------------------------------------------------------------------------------------
Total retail deposits................. 1,771,734 1,800,350 1,758,967 (28,616) 41,383 80.9 81.4 83.8
-------------------------------------------------------------------------------------
Total core deposits.................. 1,925,108 1,939,136 1,879,932 (14,028) 59,204 87.9 87.7 89.6
-------------------------------------------------------------------------------------
Time deposits over $100 thousand....... 118,041 129,589 101,291 (11,548) 28,298 5.4 5.8 4.8
Short-term borrowings.................. 146,667 143,337 117,184 3,330 26,153 6.7 6.5 5.6
-------------------------------------------------------------------------------------
Total purchased liabilities.......... 264,708 272,926 218,475 (8,218) 54,451 12.1 12.3 10.4
-------------------------------------------------------------------------------------
Total sources of funding.............. $2,189,816 2,212,062 2,098,407 (22,246) 113,655 100.0% 100.0 100.0
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Average Deposits by Type of Depositor
<CAPTION>
(dollars in thousands) Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Individuals, partnerships and corporations............... $1,984,359 2,009,296 1,924,606 1,880,798 1,802,455
U.S. Government.......................................... 92 100 62 45 261
States and political subdivisions........................ 45,223 45,715 44,839 44,555 46,091
Other (certified and official checks, etc.).............. 13,475 13,614 11,716 11,047 10,263
---------------------------------------------------------------
Total average deposits by type of depositor............ $2,043,149 2,068,725 1,981,223 1,936,445 1,859,070
---------------------------------------------------------------
</TABLE>
Deposits: Average total deposits (including time deposits greater than $100
thousand) were $2.04 billion in 1999 compared to $2.07 billion in 1998, a
decrease of $25.6 million. Increases were noted in interest bearing checking
accounts, money market, savings, and demand deposit accounts. Average interest
bearing checking accounts increased by $20.9 million between 1998 and 1999,
money market accounts increased by $3.2 million, savings account balances
increased by $4.1 million and demand deposits increased by $14.6 million.
The increase in demand deposits is noteworthy because these accounts
represent the principal banking relationship for most customers. The increase in
demand 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.
These increases were offset by a $68.3 million decrease in time deposit
accounts during the same time period. The decrease in time deposits during 1999
was the result of a decision to reduce the amount of high rate deposits that had
accumulated in the Bank over the last several years. To accomplish this
objective, interest rates on these products were decreased significantly as the
identified deposit accounts were maturing. The anticipation was that these funds
would leave as interest rates were reduced. As a result of executing this
strategy, the average balance of time deposits decreased to $903.2 million in
1999, compared to $971.5 million in 1998. The average yield on time deposits
also decreased from 5.76% in 1998 to 5.06% in 1999. This resulted in a reduction
in interest expense on time deposits of $10.3 million or 18.4%.
34
<PAGE>
Management's Discussion and Analysis (continued)
For 1999, TrustCo had an average of $118.0 million of time deposits with
balances greater than $100 thousand. 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 3.60% in 1999 compared to
4.23% in 1998. The decrease in the average balance of interest bearing deposits,
coupled with a 63 basis point decrease in the average cost, resulted in a
decrease of approximately $13.6 million in interest expense to $68.0 million in
1999.
The Company strives to maintain competitive rates on deposit accounts and
to attract customers through a combination of competitive interest rates,
quality 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, 1999
<S> <C>
Under 3 months.............................. $ 39,773
3 to 6 months .............................. 13,464
6 to 12 months ............................. 29,552
Over 12 months.............................. 32,847
--------
Total....................................... $115,636
--------
</TABLE>
Other funding sources: The Company had $146.7 million of average short-term
borrowings outstanding during 1999 compared to $143.3 million in 1998. The
average cost of short-term borrowings was 4.07% in 1999 and 4.71 % in 1998. This
resulted in a decrease in interest expense of approximately $780 thousand.
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) 1999 vs. 1998 1998 vs. 1997
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................... $(6,505) (4,739) (1,766) 4,775 5,077 (302)
Other short-term investments......... 16 14 2 39 39 --
Securities available for sale:
Taxable............................ 2,584 3,055 (471) (4,556) (2,854) (1,702)
Tax-exempt......................... 1,668 1,785 (117) 739 764 (25)
------------------------------------------------------------------------------------
Total securities available
for sale......................... 4,252 4,840 (588) (3,817) (2,090) 1,727)
Loans................................ (4,019) 1,097 (5,116) 1,262 3,596 (2,334)
------------------------------------------------------------------------------------
Total interest income.............. (6,256) 1,212 (7,468) 2,259 6,622 (4,363)
------------------------------------------------------------------------------------
Interest expense:
Interest bearing checking accounts... (767) 287 (1,054) (11) 154 (165)
Savings.............................. (2,495) 126 (2,621) (2,240) (33) (2,207)
Time deposits
and money markets. (10,293) (3,672) (6,621) 2,901 3,555 (654)
Short-term borrowings................ (779) 154 (933) 1,177 1,232 (55)
------------------------------------------------------------------------------------
Total interest expense............. (14,334) (3,105) (11,229) 1,827 4,908 (3,081)
------------------------------------------------------------------------------------
Net interest income (TE)........... $ 8,078 4,317 3,761 432 1,714 (1,282)
------------------------------------------------------------------------------------
</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.
35
<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 1999 increase in net
interest income was primarily the result of decreased cost of funding sources
and a redeployment of assets from low yielding overnight investments to the
higher yielding loan and investment portfolios.
Taxable equivalent net interest income for 1999 was $97.2 million, up $8.1
million over 1998. The average balance of interest earning assets decreased by
$3.2 million in 1999. The yield on average interest earning assets decreased by
26 basis points to 7.33% in 1999, compared to 7.59% in 1998, while the average
cost of interest bearing liabilities decreased 63 basis points during 1999 to
3.63% from 4.26% in 1998. Likewise, the average balance of interest bearing
liabilities decreased from $2.07 billion in 1998 to $2.04 billion in 1999. Total
interest expense for 1999 was $74.0 million, a decrease of $14.3 million over
the 1998 expense of $88.3 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>
1997 $.43
1998 $.50
1999 $.56
</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 79.2% of net income for 1999, 76.0% for 1998, and 72.3% for 1997. These
are significant payouts to the Company's shareholders and are considered by
management to be a prudent use of the excess capital in TrustCo. As to the
likelihood of future dividends, the philosophy stated above will continue in
2000 and, where appropriate, the Board of Directors will declare dividends
consistent with that operating philosophy.
TrustCo's Tier 1 capital was $168.8 million or 13.55% of risk-adjusted
assets at December 31, 1999, and $167.2 million or 12.78% of risk-adjusted
assets at December 31, 1998. Tier 1 capital to average assets at December 31,
1999 was 7.15%, as compared to 6.89% at year end 1998. At December 31, 1999 and
1998, 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.
36
<PAGE>
Management's Discussion and Analysis (continued)
Nonperforming assets at year end 1999 totalled $11.7 million, a decrease of
$5.9 million from the balance of $17.6 million at year end 1998. Nonperforming
loans decreased from $12.4 million in 1998 to $9.9 million at year end 1999.
Nonperforming loans as a percentage of the total loan portfolio were 0.73% in
1999 and 0.94% in 1998. Given the trends in bankruptcies and real estate values
which secure much of the Bank's real estate loan portfolio, there continues to
be concern relative to the level of nonperforming loans in the future.
Included in nonperforming loans at year end 1999 are $4.4 million of loans
in nonaccrual status, a decrease of $2.7 million from the 1998 balance of $7.1
million. Loans past due three payments or more and still accruing interest
amounted to $500 thousand, down $900 thousand from the 1998 year end balance.
Restructured loans in 1998 were $3.8 million, compared to $5.0 million in 1999.
Adherence to sound 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 but $100 thousand of the $9.9 million of nonperforming loans at
December 31, 1999 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. Likewise, virtually all charge
offs for 1999 occurred in the residential real estate and retail consumer loan
portfolios. During 1999, gross charge offs of these types of loans were $7.2
million (which represented 92% of total gross charge offs), up 42% from 1998. In
1998, charge offs for these types of loans were $5.1 million, 65% higher than in
1997. There has been a dramatic shift of nonperforming loans and charge offs 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 that has occurred in much of
TrustCo's market area 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 led to an increase in defaults on loans.
TrustCo strives to identify borrowers that are experiencing financial
difficulties, and to work aggressively so as to minimize losses.
TrustCo has a diversified loan portfolio with no concentrations to any one
borrower or any single industry, and which includes a significant balance of
residential mortgage loans to borrowers in the Capital District.
Nonperforming assets at year end 1999 include $1.8 million of foreclosed
properties, compared to $5.2 million in 1998. 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 $1.8 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, 1999, 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.
<TABLE>
Nonperforming Assets
<CAPTION>
(dollars in thousands) As of December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Loans in nonaccrual status........................... $ 4,433 7,147 6,298 10,748 12,832
Loans past due 3 payments or more.................... 509 1,454 1,060 792 1,696
Restructured loans................................... 4,979 3,782 3,294 2,495 1,130
------------------------------------------------------------------
Total nonperforming loans............................ 9,921 12,383 10,652 14,035 15,658
Foreclosed real estate............................... 1,771 5,174 9,309 6,518 3,732
------------------------------------------------------------------
Total nonperforming assets........................... $11,692 17,557 19,961 20,553 19,390
------------------------------------------------------------------
Allowance for loan losses............................ $55,820 54,375 53,455 51,561 48,320
Allowance coverage of nonperforming loans............ 5.63x 4.39 5.02 3.67 3.09
Nonperforming loans as a % of total loans............ 0.73% 0.94 0.82 1.13 1.28
Nonperforming assets as a % of total assets.......... 0.49 0.71 0.84 0.91 0.89
</TABLE>
37
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Allowance For Loan Losses
(dollars in millions)
(CHART OMITTED)
<CAPTION>
<S> <C>
1997 $53.5
1998 $54.4
1999 $55.8
</TABLE>
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 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 consumers' easy access 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 in 1999.
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 1999 and
1998 were $7.8 million and $6.6 million, respectively. As noted above, the mix
of loan types giving rise to loan charge offs has shifted to the residential
real estate portfolio. Recoveries were $4.2 million in 1999 and $2.9 million in
1998. The provision recorded on the consolidated income statement in 1999 was
$5.1 million compared to $4.6 million in 1998.
Net charge offs as a percentage of average loans were 0.27% and 0.28% in
1999 and 1998, respectively. The allowance for loan losses as a percentage of
loans outstanding was 4.14% in 1999 and 4.11% in 1998. 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 since 1995 under a troubled debt
restructuring, as impaired loans.
At year end 1999 and 1998, there were $4.7 million of impaired loans. The
average balances of
<TABLE>
Allowance to Loans Outstanding
(CHART OMITTED)
<CAPTION>
<S> <C>
1997 4.12%
1998 4.11%
1999 4.14%
</TABLE>
impaired loans were $5.0 million during 1999 and $4.0 million during 1998. The
Company recognized approximately $400 thousand of interest income on these loans
in each of 1999 and 1998.
38
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Summary of Loan Loss Experience
<CAPTION>
(dollars in thousands) 1999 1998 1997 1996 1995
Amount of loans outstanding at end of year
<S> <C> <C> <C> <C> <C>
(less unearned income).......................... $1,349,809 1,322,703 1,298,276 1,241,882 1,226,142
Average loans outstanding during year
(less average unearned income).................. 1,329,458 1,311,967 1,260,771 1,227,407 1,187,929
---------------------------------------------------------------------
Balance of allowance at beginning of year......... 54,375 53,455 51,561 48,320 38,851
Loans charged off:
Commercial...................................... 619 1,498 3,506 3,213 4,823
Real estate..................................... 6,534 3,883 2,014 1,498 1,694
Installment..................................... 635 1,180 1,059 937 821
---------------------------------------------------------------------
Total........................................ 7,788 6,561 6,579 5,648 7,338
---------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial...................................... 2,811 2,308 2,718 1,963 3,504
Real estate..................................... 1,140 362 169 110 258
Installment..................................... 219 201 172 239 347
Total........................................ 4,170 2,871 3,059 2,312 4,109
---------------------------------------------------------------------
Net loans charged off............................. 3,618 3,690 3,520 3,336 3,229
---------------------------------------------------------------------
Additions to allowance charged to
operating expense............................... 5,063 4,610 5,414 6,577 12,698
---------------------------------------------------------------------
Balance of allowance at end of year............... $ 55,820 54,375 53,455 51,561 48,320
---------------------------------------------------------------------
Net charge offs as a percent of average
loans outstanding during year
(less average unearned income).................. 0.27% 0.28% 0.28 0.27 0.27
Allowance as a percent of loans outstanding
at end of year................................. 4.14 4.11 4.12 4.15 3.94
---------------------------------------------------------------------
</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 to 90 days category. All securities available for sale are presented at
fair market value. 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, 1999, the Company's gap position indicated an excess of
assets repricing in the 0 to 90 day period of $170.0 million. This positive gap
position is the result of management's decision to retain $276.0 million of
federal funds sold and other short-term investments at year end 1999 for
potential reinvestment in 2000. The gap position turns negative (an excess of
liabilities subject to repricing over
39
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Interest Rate Sensitivity
<CAPTION>
(dollars in thousands) At December 31, 1999
Repricing, or able to be repriced, in:
0-90 91-366 1-5 Over 5 Rate
Days Days Years Years Years Insensitive Total
Assets:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold.......................... $266,000 -- -- -- -- 266,000
Other short-term investments................ 9,970 -- -- -- -- 9,970
Securities available for sale............... 60,968 60,632 132,975 371,318 14,937 640,830
Loans, net of unearned income............... 203,529 118,599 204,771 818,477 4,433 1,349,809
Noninterest rate sensitive assets........... -- -- -- -- 97,413 97,413
--------------------------------------------------------------------------
Total assets............................ 540,467 179,231 337,746 1,189,795 116,783 2,364,022
--------------------------------------------------------------------------
Cumulative total assets....................... $540,467 719,698 1,057,444 2,247,239 2,364,022
--------------------------------------------------------------------------
Liabilities and shareholders' equity:
Deposits:
Interest bearing deposits................. $209,762 466,489 736,899 426,446 -- 1,839,596
Noninterest bearing deposits.............. 7,876 17,877 58,226 71,335 -- 155,313
--------------------------------------------------------------------------
Total deposits.......................... 217,638 484,366 795,125 497,781 -- 1,994,909
Borrowings.................................. 152,782 -- -- -- -- 152,782
Noninterest rate sensitive liabilities...... -- -- -- -- 49,975 49,975
Shareholders' equity........................ -- -- -- -- 166,356 166,356
--------------------------------------------------------------------------
Total liabilities and shareholders' equity 370,420 484,366 795,125 497,781 216,331 2,364,022
--------------------------------------------------------------------------
Cumulative total liabilities and
shareholders' equity....................... $370,420 854,785 1,649,910 2,147,691 2,364,022
--------------------------------------------------------------------------
Incremental gap:
Interest sensitivity gap.................... $170,047 (305,135) (457,379) 692,014
Gap as a % of earning assets................ 7.50% (13.46) (20.18) 30.53
Interest sensitive assets to liabilities.... 149.08 38.42 45.83 279.00
Cumulative gap:
Interest sensitivity gap.................... $170,047 (135,087) (592,466) 99,548
Gap as a % of earning assets................ 7.50% (5.96) (26.14) 4.39
Interest sensitive assets to liabilities.... 149.08 86.81 67.53 112.79
--------------------------------------------------------------------------
</TABLE>
assets that can reprice during that time period) in the 91 to 366 day period by
$305.1 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 $135.1 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 in~interest rates on a short-term
basis and over the life of the asset (certain annual caps and lifetime caps).
Further, in the event of significant changes in interest rates, prepayment and
early withdrawal levels would be likely to deviate significantly from those
assumed in the table. 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 various 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.
40
<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. For 1999, average core deposits (total deposits less time
deposits greater than $100 thousand) amounted to $1.93 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 thousand. The average balances
of these purchased liabilities are detailed in the table "Average Sources of
Funding." During 1999, the average balance of purchased liabilities was $264.7
million, compared with $272.9 million in 1998, and $218.5 million in 1997.
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, 1999 and 1998,
commitments to extend credit in the form of loans, including unused lines of
credit, amounted to $232.1 million and $230.2 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, 1999 and 1998,
outstanding standby letters of credit were approximately $2.1 million and $2.0
million, respectively.
Other off-balance sheet risk: TrustCo does not engage in activities
involving interest rate swaps, forward placement contracts, 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 $15.4 million in 1999, $22.1 million in 1998 and $17.2 million in 1997.
Included in the 1999 results are $5.4 million of net securities losses compared
with net gains of approximately $1 million in 1998 and net losses of $200
thousand in 1997. Excluding securities transactions, noninterest income would
have been $20.9 million, $21.1 million, and $17.4 million in 1999, 1998 and
1997, 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
$8.1 million in 1999, $7.0 million in 1998 and $6.6 million in 1997. Trust fees
are generally calculated as a percentage of the assets under management by the
Trust Department.
<TABLE>
Noninterest income
<CAPTION>
(dollars in thousands) 1999 vs. 1998
1999 1998 1997 Amount Percent
<S> <C> <C> <C> <C> <C>
Trust department income............................. $ 8,065 6,973 6,554 1,092 15.7%
Fees for services to customers...................... 8,795 8,799 7,671 (104) (1.2)
Net gain/(loss) on securities transactions.......... (5,446) 998 (166) (6,444) (645.7)
Letter of credit reserve recapture.................. -- 2,398 -- (2,398) (100.0)
Other............................................... 4,102 2,954 3,163 1,148 38.9
------------------------------------------------------------------
Total noninterest income.......................... $15,416 22,122 17,222 (6,706) (30.3)%
------------------------------------------------------------------
</TABLE>
41
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Noninterest Expense
<CAPTION>
(dollars in thousands) 1999 vs. 1998
1999 1998 1997 Amount Percent
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits....................... $24,994 23,367 23,162 1,627 7.0%
Net occupancy expense................................ 4,004 5,898 5,270 (1,894) (32.1)
Equipment expense.................................... 5,359 5,292 4,165 67 1.3
FDIC insurance expense............................... 242 244 246 (2) (0.8)
Professional services................................ 2,651 2,664 3,489 (13) (0.5)
Other real estate expenses/(income).................. (700) 1,856 1,056 (2,556) (137.7)
Other................................................ 9,086 9,444 8,838 (358) (3.8)
-----------------------------------------------------------------
Total noninterest expense.......................... $45,636 48,765 46,226 (3,129) (6.4)%
-----------------------------------------------------------------
</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 $1.2 million in 1999 and $600 thousand in 1998. Proceeds from
the sale of these fixed assets were approximately $2.1 million in 1999 and $1.5
million in 1998.
Noninterest Expense: Noninterest expense was $45.6 million in 1999, compared
with $48.8 million in 1998 and $46.2 million in 1997. 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 38.6% in 1999, 40.3% in 1998 and 40.6% in 1997. The general
industry goal is the attainment of a 60% efficiency ratio. TrustCo has
consistently outperformed this industry goal by a wide margin since 1994.
<TABLE>
Efficiency Ratio
(CHART OMITTED)
<CAPTION>
<S> <C>
1997 40.61%
1998 40.26%
1999 38.62%
</TABLE>
Salaries and employee benefits are the most significant component of
noninterest expense. For 1999, these expenses amounted to $25.0 million,
compared with $23.4 million in 1998. The increase in salaries and employee
benefits reflects the addition of new branches and salary adjustments given to
employees.
Net occupancy costs decreased to $4.0 million in 1999 from $5.9 million in
1998 and $5.3 million in 1997. The reduction in net occupancy cost is the result
of reversing a $750 thousand environmental loss accrual during the fourth
quarter of 1999 that had been established in 1998. During 1999 the Company
completed the required investigative work associated with the site and received
clearance from the regulatory authorities that no further clean up efforts were
required at this time.
Equipment expense increased to $5.4 million from $5.3 million for 1998 due
primarily to the costs associated with the Year 2000 project. All direct costs
of consultants and equipment are categorized as a component of computer
equipment expense.
Other real estate expenses decreased to income of $700 thousand in 1999
from $1.9 million expense in 1998. The reduction in expense is the result of
gains recognized on the liquidation of various foreclosed properties during the
year. This reflects the Company's policy of early recognition of problem loan
charge offs and aggressive pursuit of recoveries on these nonperforming assets.
Income Tax
In 1999, TrustCo recognized income tax expense of $19.7 million, as
compared to $19.4 million in 1998 and $18.9 million in 1997. 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 $1.2 million at
December 31, 1999 and $2.1 million at December 31, 1998 is reserved primarily
for federal and state tax
42
<PAGE>
Management's Discussion and Analysis (continued)
law restrictions on the deductibility of certain temporary differences.
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 $38.7 million and $36.8 million at December 31, 1999 and 1998,
respectively, will be realized.
Year 2000 Update
During 1999 the Company completed its preparation for the century date
change. Testing continued during 1999 for both the mainframe and personal
computer-based systems. The contingency plan was tested to ensure that, should
mission-critical systems fail as a result of the date change or for other
environmental reasons, continued processing would occur at the disaster recovery
site. Customer contacts and evaluations were completed to ensure that their
businesses would not be seriously affected by the century date change.
All of the efforts expended from 1995 to 1999 resulted in a successful
transition to the new century date and TrustCo experienced no disruption of
services or inconvenience to its customers. It is anticipated that operating
costs for 2000 will be approximately $1 million less than in 1999.
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 cost 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
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. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133" (Statement 137), which deferred
the effective date of Statement 133 by one year, from fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. Management is
currently evaluating the impact, if any, on the Company's consolidated financial
statements.
43
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
Summary of unaudited quarterly financial information
<CAPTION>
(dollars in thousands, except per share data)
1999 1998
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........ $41,666 41,598 42,091 41,850 167,205 43,403 43,814 44,174 42,659 174,050
Interest expense....... 19,239 18,613 18,271 17,890 74,013 21,755 22,458 22,805 21,329 88,347
-------------------------------------------------------------------------------------------------
Net interest income ... 22,427 22,985 23,820 23,960 93,192 21,648 21,356 21,369 21,330 85,703
Provision for loan losses 1,513 1,500 1,000 1,050 5,063 1,372 1,558 450 1,230 4,610
-------------------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses.......... 20,914 21,485 22,820 22,910 88,129 20,276 19,798 20,919 20,100 81,093
Noninterest income..... 5,420 4,250 3,898 1,848 15,416 4,554 5,347 4,715 7,506 22,122
Noninterest expense.... 12,202 11,353 11,500 10,581 45,636 11,529 11,299 11,757 14,180 48,765
-------------------------------------------------------------------------------------------------
Income before
income taxes......... 14,132 14,382 15,218 14,177 57,909 13,301 13,846 13,877 13,426 54,450
Income tax expense..... 4,809 4,890 5,246 4,779 19,724 4,923 5,180 4,668 4,664 19,435
-------------------------------------------------------------------------------------------------
Net income............. 9,323 9,492 9,972 9,398 38,185 8,378 8,666 9,209 8,762 35,015
-------------------------------------------------------------------------------------------------
Per share data (1):
Basic earnings......... .17 .18 .19 .18 .71 .16 .16 .17 .16 .65
Diluted earnings....... .17 .17 .18 .17 .68 .15 .16 .16 .16 .63
Cash dividends declared .14 .14 .14 .15 .56 .12 .12 .12 .14 .50
-------------------------------------------------------------------------------------------------
(1) Per share data have been adjusted for a 2 for 1 stock split in 1999 and a 15% stock split in 1998.
</TABLE>
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.
TrustCo's New Initiatives
TrustCo has enjoyed tremendous success in providing superior financial
results to its shareholders by delivering world-class service and convenience to
its customers. Going into the new millennium, TrustCo recognizes the need to
continue to evolve and change as customer and business needs change. The Company
has developed a number of new initiatives that mark the direction for the
future.
TrustcoBankUSA.com
The Internet has changed virtually every aspect of our lives from how we
purchase books to ordering airline tickets. The Internet has also made banking
an on-line commodity. TrustCo has established a plan to launch a web-based
banking site under the banner TrustcoBankUSA. Customers of TrustcoBankUSA will
enjoy access to their account information 24 hours a day, 7 days a week. They
will be able to review activity in their accounts, make funds transfers, and pay
bills.
We anticipate launching TrustcoBankUSA during the first half of 2000 and
begin seeing new deposit balances shortly thereafter.
Landmark Financial Corporation
In February 2000, TrustCo entered into an agreement to acquire Landmark
Financial Corp. and its wholly-owned subsidiary, Landmark Community Bank. This
acquisition is subject to regulatory and shareholder approval and is anticipated
to be completed during the third quarter of 2000. Landmark shareholders will
receive cash in the amount of $21.00 for each
44
<PAGE>
Management's Discussion and Analysis (continued)
share. With the Landmark acquisition, TrustCo's marketing territory will extend
into Montgomery County.
Geographic Opportunities
Though we have always focused on our home in the Capital District Region of
New York State, and while that will never change, we have identified other
geographic territories that resemble Upstate New York but are enjoying economic
expansion greater than our own. Therefore, TrustCo will be completing
evaluations during 2000 regarding branch or buy opportunities in these new
geographic territories. Our plans call for us to have a number of branch
locations in these new territories so as to provide our new customers with easy
banking access. We would offer the range of banking products that are currently
offered by Trustco Bank, including all of the leading edge product features that
have been designed into our residential real estate and home equity loan
products. We expect that these products will be as well received in these new
territories as they are here in Upstate New York.
<TABLE>
Five Year Summary of Financial Data
<CAPTION>
(dollars in thousands, except per share data) Years Ended December 31,
1999 1998 1997 1996 1995
Statement of income data:
<S> <C> <C> <C> <C> <C>
Interest income................................. $ 167,205 174,050 172,005 166,647 161,552
Interest expense................................ 74,013 88,347 86,520 82,342 80,200
--------------------------------------------------------------------
Net interest income............................. 93,192 85,703 85,485 84,305 81,352
Provision for loan losses....................... 5,063 4,610 5,414 6,577 12,698
--------------------------------------------------------------------
Net interest income after provision
for loan losses 88,129 81,093 80,071 77,728 68,654
Noninterest income.............................. 15,416 22,122 17,222 10,313 14,067
Noninterest expense............................. 45,636 48,765 46,226 42,015 44,440
--------------------------------------------------------------------
Income before income taxes...................... 57,909 54,450 51,067 46,026 38,281
Income tax expense.............................. 19,724 19,435 18,892 17,327 12,754
--------------------------------------------------------------------
Net income...................................... $ 38,185 35,015 32,175 28,699 25,527
--------------------------------------------------------------------
Share data (1):
Average equivalent diluted shares outstanding
(in thousands)................................ 55,910 55,907 55,849 55,197 54,665
Book value...................................... $ 3.11 3.47 3.32 3.01 2.98
Cash dividends.................................. 0.56 0.50 0.43 0.38 0.33
Basic earnings.................................. 0.71 0.65 0.59 0.53 0.48
Diluted earnings................................ 0.68 0.63 0.58 0.52 0.47
--------------------------------------------------------------------
Financial:
Return on average assets........................ 1.58% 1.44 1.40 1.29 1.23
Return on average shareholders' equity (2)...... 22.52 21.47 20.23 19.05 18.03
Cash dividend payout ratio...................... 79.16 75.97 72.34 70.38 69.55
Tier 1 capital as a % of total risk adjusted
assets....................................... 13.55 12.78 13.43 12.99 12.45
Total capital as a % of total risk adjusted
assets........................................ 14.84 14.06 14.72 14.28 13.73
Efficiency ratio................................ 38.62 40.26 40.61 39.51 42.52
Net interest margin............................. 3.82 3.81 4.02 4.07 4.18
--------------------------------------------------------------------
Average balances:
Total assets.................................... $2,411,195 2,433,238 2,302,598 2,220,535 2,073,391
Earning assets.................................. 2,335,682 2,338,838 2,204,725 2,136,826 1,994,240
Loans, net...................................... 1,329,458 1,311,967 1,260,771 1,227,407 1,187,929
Allowance for loan losses....................... (56,449) (55,208) (53,173) (51,233) (45,086)
Securities available for sale................... 683,790 611,957 623,001 580,919 301,080
Investment securities........................... -- -- -- -- 292,908
Deposits........................................ 2,043,149 2,068,725 1,981,223 1,936,445 1,859,070
Short-term borrowings........................... 146,667 143,337 117,184 98,324 38,090
Long-term debt.................................. -- -- -- -- 788
Shareholders' equity............................ 179,484 180,103 167,273 155,927 145,469
(1) Share and per share data have been adjusted for a 2 for 1 stock split in 1999, a 15% stock split in 1998, 1997 and 1996, and
a 6 for 5 stock split in 1995.
(2) Average shareholders' equity excludes the market adjustment for securities available for sale.
</TABLE>
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 the inherent risk of loss on the loan portfolio. 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 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.
/s/Robert A. McCormick
- ---------------------
Robert A. McCormick
President and Chief Executive Officer
/s/Robert T.Cushing
- -------------------
Robert T. Cushing
Vice President and Chief Financial Officer
January 18, 2000
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, 1999 and 1998, 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, 1999.
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/KPMG LLP
-------------
Albany, New York
January 18, 2000
48
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
dollars in thousands, except per share data) Years Ended December 31,
1999 1998 1997
Interest income:
<S> <C> <C> <C>
Interest and fees on loans...................................................... $106,734 110,635 109,346
Interest and dividends on:
U.S. Treasuries and agencies.................................................. 12,490 15,358 27,356
States and political subdivisions............................................. 7,231 6,177 5,637
Mortgage-backed securities.................................................... 16,323 12,692 10,094
Other......................................................................... 8,396 6,652 1,811
Interest on federal funds sold.................................................. 16,031 22,536 17,761
--------------------------------------
Total interest income....................................................... 167,205 174,050 172,005
--------------------------------------
Interest expense:
Interest on deposits............................................................ 68,041 81,596 80,946
Interest on short-term borrowings............................................... 5,972 6,751 5,574
--------------------------------------
Total interest expense...................................................... 74,013 88,347 86,520
--------------------------------------
Net interest income......................................................... 93,192 85,703 85,485
Provision for loan losses......................................................... 5,063 4,610 5,414
--------------------------------------
Net interest income after provision for loan losses......................... 88,129 81,093 80,071
--------------------------------------
Noninterest income:
Trust department income......................................................... 8,065 6,973 6,554
Fees for services to customers.................................................. 8,695 8,799 7,671
Net gain/(loss) on securities transactions...................................... (5,446) 998 (166)
Letter of credit reserve recapture.............................................. -- 2,398 --
Other........................................................................... 4,102 2,954 3,163
--------------------------------------
Total noninterest income.................................................... 15,416 22,122 17,222
--------------------------------------
Noninterest expense:
Salaries and employee benefits.................................................. 24,994 23,367 23,162
Net occupancy expense........................................................... 4,004 5,898 5,270
Equipment expense............................................................... 5,359 5,292 4,165
FDIC~insurance expense.......................................................... 242 244 246
Professional services........................................................... 2,651 2,664 3,489
Other real estate expenses/(income)............................................. (700) 1,856 1,056
Other........................................................................... 9,086 9,444 8,838
--------------------------------------
Total noninterest expense................................................... 45,636 48,765 46,226
--------------------------------------
Income before income taxes ....................................................... 57,909 54,450 51,067
Income taxes...................................................................... 19,724 19,435 18,892
--------------------------------------
Net income........................................................................ $ 38,185 35,015 32,175
--------------------------------------
Earnings per share:
Basic........................................................................... $ 0.71 0.65 0.59
Diluted......................................................................... 0.68 0.63 0.58
--------------------------------------
Per share data has been adjusted for a 2 for 1 stock split in 1999 and a 15% stock split in 1998 and 1997.
See accompanying notes to consolidated financial statements.
</TABLE>
49
<PAGE>
Consolidated Statements of Condition
<TABLE>
<CAPTION>
(dollars in thousands, except share data) As of December 31,
1999 1998
ASSETS
<S> <C> <C>
Cash and due from banks......................................................... $ 54,542 41,950
Federal funds sold.............................................................. 266,000 358,000
Other short-term investments.................................................... 9,970 24,979
---------------------------------
Total cash and cash equivalents......................................... 330,512 424,929
Securities available for sale................................................... 640,830 717,410
Loans........................................................................... 1,350,768 1,323,769
Less: Unearned income......................................................... 959 1,066
Allowance for loan losses............................................... 55,820 54,375
---------------------------------
Net loans............................................................... 1,293,989 1,268,328
Bank premises and equipment..................................................... 16,209 17,022
Real estate owned............................................................... 1,771 5,174
Other assets.................................................................... 80,711 52,217
---------------------------------
Total assets............................................................ $2,364,022 2,485,080
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand........................................................................ $ 155,313 154,358
Savings....................................................................... 641,650 660,376
Interest-bearing checking accounts............................................ 272,384 266,027
Money market deposit accounts................................................. 58,557 58,061
Certificates of deposit (in denominations of $100,000 or more)................ 115,636 139,310
Other time accounts........................................................... 751,369 829,282
---------------------------------
Total deposits.......................................................... 1,994,909 2,107,414
Short-term borrowings........................................................... 152,782 147,924
Accrued expenses and other liabilities.......................................... 49,975 43,900
---------------------------------
Total liabilities....................................................... 2,197,666 2,299,238
---------------------------------
Shareholders' equity:
Capital stock; $1 par value. 100,000,000 shares authorized, and 56,410,787 and
27,976,793 shares issued at December 31, 1999 and 1998, respectively........ 56,411 27,977
Surplus....................................................................... 85,784 110,398
Undivided profits............................................................. 48,491 40,533
Accumulated other comprehensive income:
Net unrealized gain/loss on securities available for sale, net of tax....... (2,452) 18,603
Treasury stock; 3,002,378 and 1,184,525 shares, at cost, at December 31, 1999
and 1998, respectively...................................................... (21,878) (11,669)
---------------------------------
Total shareholders' equity.............................................. 166,356 185,842
---------------------------------
Total liabilities and shareholders' equity.............................. $2,364,022 2,485,080
---------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
50
<PAGE>
Consolidated Statements of Changes in Shareholders'Equity
<TABLE>
<CAPTION>
(dollars in thousands, except per share data) Three Years Ended December 31, 1999
Accumulated
Other Compre-
Capital Undivided Comprehensive hensive Treasury
Stock Surplus Profits Income/(Loss) Income Stock
<S> <C> <C> <C> <C> <C> <C>
Beginning balance, January 1, 1997...................... 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, $.43 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, $.50 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)
Comprehensive income
Net income - 1999..................................... -- -- 38,185 -- 38,185 --
------
Other comprehensive income/(loss), net of tax:
Unrealized net holding loss arising during the year,
net of tax (pre-tax loss $30,150)................... -- -- -- -- (17,834) --
Reclassification adjustment for net loss realized
in net income during the year (pre-tax loss $5,446). -- -- -- -- 3,221 --
------
Other comprehensive loss.............................. -- -- -- (21,055) (21,055) --
------
Comprehensive income.................................... -- -- -- 17,130 --
------
Cash dividend declared, $.5625 per share................ -- -- (30,227) -- --
Stock options exercised................................. 241 2,339 -- -- --
2 for 1 stock split (28,193,407 shares)................. 28,193 (28,193) -- -- --
Treasury stock purchased................................ -- -- -- -- (15,961)
Sale of treasury stock.................................. -- 1,240 -- -- 5,752
-------------------------------------------------------------------
Ending balance, December 31, 1999....................... $56,411 85,784 48,491 (2,452) (21,878)
-------------------------------------------------------------------
Per share data has been adjusted for a 2 for 1 stock split in 1999 and a 15% stock split in 1998 and 1997.
See accompanying notes to consolidated financial statements.
</TABLE>
51
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(dollars in thousands) Years Ended December 31,
1999 1998 1997
Increase/(decrease) in cash and cash equivalents
Cash flows from operating activities:
<S> <C> <C> <C>
Net income................................................................... $ 38,185 35,015 32,175
--------------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................ 2,229 2,532 3,342
Gain on sales of fixed assets............................................ (1,249) (591) (460)
Provision for loan losses................................................ 5,063 4,610 5,414
Provision for deferred tax (benefit)/expense............................. (1,882) 1,405 (3,693)
Net (gain)/loss on sale or call of securities available for sale......... 5,446 (998) 166
(Increase)/decrease in taxes receivable.................................. 395 (540) 730
Decrease in interest receivable.......................................... 196 1,189 1,599
Increase/(decrease) in interest payable.................................. (358) (293) 191
(Increase)/decrease in other assets...................................... (11,198) 8,416 5,386
Increase/(decrease) in accrued expenses.................................. 5,776 (464) 8,125
--------------------------------------------
Total adjustments.................................................... 4,418 15,266 20,800
--------------------------------------------
Net cash provided by operating activities............................ 42,603 50,281 52,975
--------------------------------------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale....................... 228,600 32,785 179,342
Proceeds from maturities and calls of securities available for sale........ 167,830 229,362 205,256
Purchase of securities available for sale.................................. (360,891) (372,006) (350,118)
Net increase in loans ..................................................... (33,583) (32,904) (70,148)
Proceeds from sales of real estate owned .................................. 4,797 4,220 3,665
Proceeds from sales of fixed assets........................................ 2,099 1,478 3,967
Capital expenditures....................................................... (2,266) (1,832) (2,360)
---------------------------------------------
Net cash provided by/(used in) investing activities........................ 6,586 (138,897) (30,396)
---------------------------------------------
Cash flows from financing activities:
Net increase/(decrease) in deposits........................................ (112,505) 85,551 68,717
Net increase in short-term borrowing....................................... 4,858 20,074 16,188
Proceeds from exercise of stock options.................................... 2,580 895 1,624
Proceeds from sale of treasury stock....................................... 6,992 5,395 3,026
Payments to acquire treasury stock......................................... (15,961) (10,439) (7,735)
Dividends paid............................................................. (29,570) (25,671) (22,438)
---------------------------------------------
Net cash (used in)/provided by financing activities........................ (143,606) 75,805 59,382
---------------------------------------------
Net increase/(decrease) in cash and cash equivalents......................... (94,417) (12,811) 81,961
Cash and cash equivalents at beginning of year............................... 424,929 437,740 355,779
---------------------------------------------
Cash and cash equivalents at end of year..................................... $330,512 424,929 437,740
---------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid................................................................ $ 74,371 88,640 86,329
Income taxes paid............................................................ 20,281 18,273 21,615
Transfer of loans to real estate owned....................................... 2,859 4,787 10,234
Increase in dividends payable................................................ 657 930 839
Change in unrealized (gain)/loss on securities available for sale - gross.... 35,595 (4,654) (17,875)
Change in deferred tax effect on unrealized gain/(loss) on securities
available for sale (14,540) 1,902 7,263
--------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
52
<PAGE>
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The accounting and financial reporting policies of TrustCo Bank Corp NY
(Company or TrustCo), ORE Subsidiary Corp., 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 for sale in response to changes in
market interest rates, related changes in liquidity needs, or changes in the
availability of and yield on alternative investments. Unrealized losses on
securities that reflect a decline in value which is other than temporary, if
any, are charged to income. Nonmarketable equity securities (principally stock
of the Federal Reserve Bank and the Federal Home Loan Bank, 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
The 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 change 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.
53
<PAGE>
Notes to Consolidated Financial Statements (continued)
Income Taxes
Deferred taxes are recorded for the future tax consequences of events that
have been recognized in the financial statements or tax returns, based upon
enacted tax laws and rates. Deferred tax assets are recognized subject to
management's judgment that realization is more likely than not.
Dividend Restrictions
Banking regulations restrict the amount of cash dividends which may be paid
during a year by the Bank to the Parent Company without the written consent of
the appropriate bank regulatory agency. Based on these restrictions, the Company
could pay $18.7 million plus 2000 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
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.
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 $11.5 million and $10.0
million at December 31, 1999 and 1998, respectively.
(3)Securities Available for Sale
The amortized cost and approximate market value of the securities available
for sale are as follows:
<TABLE>
<CAPTION>
(dollars in thousands) December 31, 1999
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasuries
<S> <C> <C> <C> <C>
and agencies................ $189,207 745 3,974 185,978
States and political
subdivisions................ 136,203 864 4,507 132,560
Mortgage-backed
securities.................. 211,450 302 6,194 205,558
Other......................... 81,834 0 1,102 80,732
----------------------------------------------------
Total debt
securities.................. 618,694 1,911 15,777 604,828
Equity securities............. 26,274 9,728 -- 36,002
----------------------------------------------------
Total securities
available for
sale $644,968 11,639 15,777 640,830
----------------------------------------------------
(dollars in thousands) December 31, 1998
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasuries
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>
54
<PAGE>
Notes to Consolidated Financial Statements (continued)
The following table distributes the debt securities included in the
available for sale portfolio as of December 31, 1999, based on the securities'
final maturity (mortgage-backed securities are stated using an estimated average
life):
<TABLE>
<CAPTION>
(dollars in thousands) Approximate
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less........................ $ 48,804 48,632
Due after one year through five years.......... 93,203 91,259
Due after five years through ten years......... 317,589 311,259
Due after ten years............................ 159,098 153,678
---------------------------
$618,694 604,828
---------------------------
</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 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands) December 31,
1999 1998 1997
<S> <C> <C> <C>
Proceeds....................................... $228,600 32,785 179,342
Gross realized gains........................... 1,204 1,000 828
Gross realized losses.......................... 6,650 2 994
</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 $274.5
million and $269.2 million at December 31, 1999 and 1998, 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, 1999 and 1998.
(4) Loans and Allowance for Loan Losses
A summary of loans by category is as follows:
<TABLE>
<CAPTION>
(dollars in thousands) December 31,
1999 1998
<S> <C> <C>
Commercial................................... $ 193,530 187,308
Construction................................. 15,867 12,782
Residential mortgage loans................... 980,141 949,524
Home equity line of credit................... 138,339 147,581
Installment loans............................ 22,891 26,574
------------------------
Total loans.................................. 1,350,768 1,323,769
Less: Unearned income........................ 959 1,066
Allowance for loan losses.............. 55,820 54,375
------------------------
Net loans....................................$1,293,989 1,268,328
------------------------
</TABLE>
At December 31, 1999 and 1998, loans to executive officers, directors, and
to associates of such persons aggregated $3.9 million and $3.8 million,
respectively. During 1999, new loans of $2.3 million were made and repayments of
loans totalled $2.2 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.
The following table sets forth the information with regard to nonperforming
loans:
<TABLE>
<CAPTION>
(dollars in thousands) December 31,
1999 1998 1997
<S> <C> <C> <C>
Loans in nonaccrual status................... $4,433 7,147 6,298
Loans contractually past due
3 payments or more and still
accruing interest.......................... 509 1,454 1,060
Restructured loans........................... 4,979 3,782 3,294
-----------------------------
Total nonperforming loans.................... $9,921 12,383 10,652
-----------------------------
</TABLE>
Interest on nonaccrual and restructured loans of $1.1 million in 1999 and
$1.0 million in each of 1998 and 1997 would have been earned in accordance with
the original contractual terms of the loans. Approximately $562 thousand, $498
thousand, and $519 thousand of interest on nonaccrual and restructured loans was
collected and recognized as income in 1999, 1998, and 1997, respectively. There
are no commitments to extend further credit on nonaccrual or restructured loans.
Transactions in the allowance for loan losses account are summarized as
follows:
<TABLE>
<CAPTION>
(dollars in thousands) For the years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of year........... $54,375 53,455 51,561
Provision for loan losses.............. 5,063 4,610 5,414
Loans charged off...................... (7,788) (6,561) (6,579)
Recoveries on loans
previously charged off............... 4,170 2,871 3,059
-------------------------------
Balance at year end.................... $55,820 54,375 53,455
-------------------------------
</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, 1999 and 1998. There were newly
restructured retail loans totalling $4.7 million as of December 31, 1999 and
1998 identified as impaired loans. None of the allowance for loan losses has
been specifically 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 1999, 1998, and 1997, the average balance of impaired loans was $5.0
million, $4.0 million, and $6.0 million, respectively, and there was
approximately $433 thousand, $412 thousand, and $350 thousand of interest income
recorded on these loans in the accompanying consolidated statements of income.
<TABLE>
(5) Bank Premises and Equipment
A summary of premises and equipment at December 31, 1999 and 1998 follows:
<CAPTION>
(dollars in thousands)
1999 1998
<S> <C> <C>
Land.............................. $ 2,915 2,877
Buildings ........................ 20,805 21,537
Furniture, fixtures and equipment. 17,740 16,892
Leasehold improvements............ 3,920 3,692
-----------------
45,380 44,998
Accumulated depreciation and
amortization.................... (29,171) (27,976)
-----------------
Total............................. $16,209 17,022
-----------------
</TABLE>
Depreciation and amortization expense approximated $2.2 million, $2.5
million, and $3.3 million for the years 1999, 1998, and 1997, respectively.
Occupancy expense of Bank premises included rental expense of $1.5 million in
1999, $1.4 million in 1998 and $1.3 million in 1997.
<TABLE>
(6) Short-Term Borrowings
Short-term borrowings, consisting primarily of the Trustco Short-Term
Investment Account, were as follows:
<CAPTION>
1999
(dollars in thousands) Trustco Other
Short-Term Short-Term
Account Borrowings Total
Amount outstanding at
<S> <C> <C> <C>
December 31, 1999.............. $ 87,096 65,686 152,782
Maximum amount
outstanding at any
month end.................... 106,250 69,656 153,155
Average amount
outstanding.................. 93,450 53,217 146,667
Weighted average interest rate:
For the year................. 4.49% 3.34 4.07
As of year end............... 4.83 3.62 4.31
</TABLE>
<TABLE>
<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 amountoo 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>
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,
1999 1998 1997
Current tax expense:
<S> <C> <C> <C>
Federal......................$18,248 14,498 17,642
State........................ 3,358 3,532 4,943
-----------------------------
Total current tax expense..... 21,606 18,030 22,585
Deferred tax expense/(benefit) (1,882) 1,405 (3,693)
-----------------------------
Total income tax expense......$19,724 19,435 18,892
-----------------------------
</TABLE>
56
<PAGE>
Notes to Consolidated Financial Statements (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1999 1998
Deductible/ Deductible/
(taxable) (taxable)
temporary temporary
differences differences
<S> <C> <C>
Bond accounting.................... $ (380) (185)
Benefits and deferred
remuneration 5,013 4,438
Deferred loan fees, net............ 447 553
Difference in reporting the
provision for loan losses,net.... 23,982 24,460
Other income or expense
not utilized for tax purposes.... 8,390 6,934
Depreciable assets................. 1,546 1,395
Other items........................ 888 1,278
---------------------------
Total........................ 39,886 38,873
Valuation reserve.................. (1,182) (2,051)
---------------------------
Net deferred tax asset
at end of year................... 38,704 36,822
Net deferred tax asset at
beginning of year................ 36,822 38,227
---------------------------
Deferred tax expense/(benefit)..... $(1,882) 1,405
</TABLE>
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not. The valuation allowance of $1.2 million and
$2.1 million at December 31, 1999 and 1998, respectively, is primarily reserved
for federal and state tax law restrictions on the deductibility of certain
temporary differences. The decrease in the valuation reserve is the result of a
reduction of the New York State deferred tax asset caused by the enactment of
legislation in 1999 which lowered the state tax rate for banks. 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 $38.7
million and $36.8 million at December 31, 1999 and 1998, respectively, will be
realized.
In addition to the deferred tax items described in the preceding table, the
Company also has a deferred tax asset of $1.7 million at December 31,1999, and a
deferred tax liability of $12.8 million at December 31, 1998, relating to the
net unrealized gains/(losses) on securities available for sale at the respective
dates.
The effective tax rates differ from the statutory federal income tax rate.
The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory federal income tax rate........... 35.0% 35.0 35.0
Increase/(decrease) in taxes
resulting from:
Tax exempt income....................... (4.0) (3.7) (3.7)
State income tax, net of
federal tax benefit.................... 3.3 4.6 5.3
Reduction in the tax rates.............. 1.5 --- ---
Change in valuation reserve............. (1.5) --- ---
Other items............................. (0.2) (0.2) 0.4
------------------------
Effective income tax rate.................. 34.1% 35.7 37.0
------------------------
</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, 1999 and
1998:
<TABLE>
<CAPTION>
Change in Projected Benefit Obligation:
Projected
Pension Benefits
(dollars in thousands) 1999 1998
Projected benefit obligation
<S> <C> <C>
at beginning of year......................... $21,422 19,405
Service cost................................... 1,012 798
Interest cost.................................. 1,339 1,215
Benefits paid.................................. (1,212) (1,445)
Assumption changes and other................... (1,198) 1,449
-------------------
Projected benefit obligation
at end of year............................... $21,363 21,422
-------------------
</TABLE>
Assumption changes in 1999 and 1998 primarily consisted of the change in
discount rate used to measure the projected pension obligation.
57
<PAGE>
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Change in Plan Assets:
(dollars in thousands) 1999 1998
Fair value of plan assets at
<S> <C> <C>
beginning of year.............................. $33,794 29,776
Actual return on plan assets..................... 4,604 5,463
Benefits paid.................................... (1,212) (1,445)
------------------
Fair value of plan assets at end of year......... 37,186 33,794
Funded status.................................... 15,823 12,372
Unrecognized net actuarial gain.................. (14,202) (9,783)
Unrecognized prior service cost/(benefit)........ 791 (329)
Unrecognized transition asset.................... (147) (295)
------------------
Prepaid benefit cost............................. $ 2,265 1,965
------------------
</TABLE>
<TABLE>
<CAPTION>
Components of Net Pension Benefit:
For the years ended
December 31,
(dollars in thousands) 1999 1998 1997
<S> <C> <C> <C>
Service cost................................ $ 1,012 798 712
Interest cost............................... 1,339 1,215 1,054
Expected return on plan assets.............. (2,159) (1,902) (1,603)
Amortization of net gain.................... (368) (308) (220)
Amortization of unrecognized
prior service cost/(benefit)............... 24 (45) (45)
Amortization of unrecognized
transition asset........................... (148) (148) (148)
-----------------------
Net periodic pension benefit................ $ (300) (390) (250)
-----------------------
</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:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted average discount rate ................ 6.75% 6.00 6.50
Rate of increase in future
compensation................................. 6.50 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 $4.3 million, $3.4
million, and $3.0 million in 1999, 1998, and 1997, 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 Investment Account. These assets are
reflected as other assets in the December 31, 1999 and 1998, consolidated
statements 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. 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 shows the plan's funded status and amounts recognized
in the Company's consolidated statements of condition at December 31, 1999 and
1998.
<TABLE>
<CAPTION>
Change in Projected Benefit Obligation:
Projected Post-
Retirement Benefits
(dollars in thousands) 1999 1998
Projected benefit obligation
<S> <C> <C>
at beginning of year......................... $6,183 8,807
Service cost.................................... 262 203
Retiree contributions........................... 87 70
Interest cost................................... 369 336
Benefits paid................................... (172) (193)
Assumption changes and other.................... (159) (3,040)
-----------------
Projected benefit obligation
at end of year................................ $6,570 6,183
-----------------
</TABLE>
Assumption changes reflected the change in discount rate used to measure
the projected benefit obligation in both 1999 and 1998, and the effect of
changes to the company's health insurance plans in 1998.
<TABLE>
<CAPTION>
Change in Plan Assets:
(dollars in thousands) 1999 1998
Fair value of plan assets at
<S> <C> <C>
beginning of year............................ $11,881 10,414
Actual return on plan assets.................... 1,836 2,049
Employer contribution........................... --- 4
Retiree contributions........................... 87 70
Taxes........................................... (419) (463)
Benefits paid................................... (172) (193)
------------------
Fair value of plan assets at end of year........ 13,213 11,881
------------------
Funded status................................... 6,643 5,698
Unrecognized net actuarial gain................. (7,815) (6,970)
-------------------
Accrued benefit cost............................ $(1,172) (1,272)
-------------------
</TABLE>
<TABLE>
Components of Net Periodic Benefit Cost/(Benefit):
<CAPTION>
For the years ended
December 31,
(dollars in thousands) 1999 1998 1997
<S> <C> <C> <C>
Service cost..................................... $ 262 203 378
Interest cost.................................... 369 336 513
Expected return on plan assets................... (454) (398) (336)
Amortization of net gain......................... (277) (260) (40)
--------------------
Net periodic pension (benefit)/expense........... $(100) (119) 515
--------------------
</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
1999 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, 1999, by approximately $1.1 million, 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, 1999, by
approximately $156 thousand.
The weighted average assumptions used to determine the projected benefit
obligation at December 31, 1999, 1998, and 1997 were:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Discount rate 6.75% 6.00 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 $1.1 million in 1999, and $1.4 million in both 1998 and
1997.
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 $3.3 million, $3.0 million, and
$2.6 million in 1999, 1998, and 1997, respectively.
The Company has awarded 2.9 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
At December 31, 1999, 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:
<TABLE>
<CAPTION>
(dollars in thousands
except per share data) 1999 1998 1997
Net income:
<S> <C> <C> <C>
As reported......................... $38,185 35,015 32,175
Pro forma........................... 37,143 34,239 31,672
Basic earnings per share:
As reported......................... $ 0.71 0.65 0.59
Pro forma........................... 0.69 0.64 0.58
Diluted earnings per share:
As reported......................... 0.68 0.63 0.58
Proforma............................ 0.66 0.61 0.57
</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 pro forma 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 6.0 million
shares of common stock. Under the 1993 Directors Stock Option Plan, the Company
may grant options to its directors for up to approximately 402 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 five periods from the date the
options are granted for the employee plan and they are immediately exercisable
for the directors' plan.
A summary of the status of TrustCo's stock option plans as of December 31,
1999, 1998 and 1997 and changes during the years ended on those dates are as
follows:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
Weighted Weighted
Average Average
Option Option
Shares Price Shares Price
<S> <C> <C> <C> <C>
Balance, January 1, 1997............. 5,418,013 $ 5.05 3,544,518 $ 4.53
New options awarded - 1997........... 920,460 7.90 205,252 7.90
Cancelled options - 1997............. 71,919 6.40 --- ---
Exercised options - 1997............. 377,504 4.31 377,504 4.31
Options became exercisable........... --- --- 709,796 5.73
--------------------------------------
Balance, December 31, 1997........... 5,889,050 5.53 4,082,062 4.93
New options awarded - 1998........... 792,350 11.52 176,870 11.52
Cancelled options - 1998............. 18,210 6.79 --- ---
Exercised options - 1998............. 169,320 4.19 169,320 4.19
Options became exercisable........... --- --- 717,040 6.42
--------------------------------------
Balance, December 31, 1998........... 6,493,870 6.29 4,806,652 5.42
New options awarded - 1999........... 715,000 13.22 159,000 13.22
Exercised options - 1999............. 477,875 4.07 477,875 4.07
Options became exercisable........... --- --- 683,807 7.95
--------------------------------------
Balance, December 31, 1999........... 6,730,995 $ 7.18 5,171,584 $ 6.12
--------------------------------------
</TABLE>
59
<PAGE>
Notes to Consolidated Financial Statements (continued)
<TABLE>
There are approximately 5.2 million, 4.8 million and 4.1 million of options
that are exercisable at year end 1999, 1998 and 1997, 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>
1999...................................$2.71 2.63
1998................................... 2.37 2.22
1997................................... 1.38 1.25
</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>
1999............................ 4.17% 4.17
1998............................ 4.12 4.12
1997............................ 5.15 5.15
Risk-free interest rate:
1999............................ 5.96 5.92
1998............................ 5.43 5.44
1997............................ 6.39 6.35
Expected volatility rate:
1999............................ 20.91 21.95
1998............................ 19.41 18.87
1997............................ 20.20 19.31
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, 1999:
<CAPTION>
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise
Price Outstanding Life Price
-----------------------------------------------
Less than
<S> <C> <C> <C>
$5.00............... 1,694,198 3.6 years $4.06
Between $5.01
and $10.00........... 3,529,447 6.3 years 6.49
Greater than
$10.01............... 1,507,350 9.5 years 12.33
---------------------------------------------
Total 6,730,995 6.3 years $ 7.18
---------------------------------------------
</TABLE>
<TABLE>
The following table summarizes information about the exercisable stock
options at December 31, 1999:
<CAPTION>
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise
Price Outstanding Life Price
------------------------------------------------------
Less than
<S> <C> <C> <C>
$5.00................ 1,694,198 3.6 years $ 4.06
Between $5.01
and $10.00........... 2,987,646 6.1 years 6.31
Greater than
$10.01............... 489,740 9.3 years 12.07
----------------------------------------------------
Total.................. 5,171,584 5.6 years $ 6.12
----------------------------------------------------
</TABLE>
<TABLE>
(9) Commitments and Contingent Liabilities
(a) Leases
The Bank leases certain banking premises. These leases are accounted for as
operating leases with minimum rental commitments in the amounts presented below.
The majority of these leases contain options to renew.
<CAPTION>
(dollars in thousands)
<S> <C>
2000.............................................. $1,227
2001.............................................. 1,157
2002.............................................. 965
2003.............................................. 881
2004.............................................. 825
2005 and after.................................... 4,353
-------
$9,408
-------
</TABLE>
<TABLE>
(b) Litigation
Existing litigation arising in the normal course of business is not
expected to result in any material loss to the Company.
(c) Time Deposits
At December 31, 1999, the maturity of total time deposits is as follows:
<CAPTION>
(dollars in thousands)
<S> <C> <C>
Under 1 year.................................... $557,460
1 to 2 years.................................... 236,465
2 to 3 years.................................... 29,555
3 to 4 years.................................... 26,490
4 to 5 years.................................... 14,691
over 5 years.................................... 2,344
---------
$867,005
---------
</TABLE>
60
<PAGE>
Notes to Consolidated Financial Statements (continued)
(10) Earnings Per Share
A reconciliation of the component parts of earnings per share for 1999,
1998 and 1997 follows:
<TABLE>
<CAPTION>
(dollars in thousands, Weighted
except per share data) Average Shares Per share
Income Outstanding Amounts
For the year ended
December 31, 1999:
Basic EPS:
Income available to
<S> <C> <C> <C>
common shareholders............... $38,185 53,696 $0.71
Effect of Diluted Securities:
Stock Options....................... --- 2,214 ---
-----------------------------------
Diluted EPS......................... $38,185 55,910 $0.68
-----------------------------------
For the year ended
December 31, 1998:
Basic EPS:
Income available to
common shareholders............... $35,015 53,627 $0.65
Effect of Diluted Securities:
Stock Options....................... --- 2,280 ---
-----------------------------------
Diluted EPS......................... $35,015 55,907 $0.63
-----------------------------------
For the year ended
December 31, 1997:
Basic EPS:
Income available to
common shareholders............... $32,175 54,147 $0.59
Effect of Diluted Securities:
Stock Options....................... --- 1,702 ---
-----------------------------------
Diluted EPS......................... $32,175 55,849 $0.58
-----------------------------------
</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.
Commit-ments 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,
1999 and 1998 was $232.1 million and $230.2 million, respectively. Approximately
one third of these commitments were for variable rate products at the end of
1999.
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, 1999 and 1998 was $2.1 million and
$2.0 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>
<CAPTION>
(dollars in thousands) As of December 31, 1999
Carrying Fair
Value Value
Financial assets:
<S> <C> <C>
Cash and cash equivalents .................... $ 330,512 330,512
Securities available for sale ................ 640,830 640,830
Loans......................................... 1,293,989 1,331,776
Accrued interest receivable................... 15,704 15,704
Financial liabilities:
Demand deposits .............................. 155,313 155,313
Interest-bearing deposits .................... 1,839,596 1,841,050
Borrowings ................................... 152,782 152,782
Accrued interest payable...................... 3,119 3,119
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) As of December 31, 1998
Carrying Fair
Value Value
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>
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
61
<PAGE>
Notes to Consolidated Financial Statements (continued)
to the interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality.
Deposit Liabilities
The fair values disclosed for noninterest bearing deposits, 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 does not engage in activities involving interest rate swaps,
forward placement contracts, or any other instruments commonly referred to as
derivatives. 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, 1999 and 1998, the Bank was required to maintain a
minimum leverage ratio of Tier I (leverage) capital to total adjusted quarterly
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 quarterly 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, 1999 and 1998, 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, 1999 and 1998 for the Bank and the
Company (on a consolidated basis):
<TABLE>
<CAPTION>
(dollars in thousands) As of December 31, 1999
Amount Ratio
Tier I (leverage) capital:
<S> <C> <C>
Trustco Bank, NA........... $147,518 6.24%
TrustCo Bank Corp NY....... 168,808 7.15
Tier I risk-based capital:
Trustco Bank, NA........... 147,518 11.95
TrustCo Bank Corp NY....... 168,808 13.55
Total risk-based capital:
Trustco Bank, NA........... 163,443 13.24
TrustCo Bank Corp NY....... 184,877 14.84
(dollars in thousands) As of December 31, 1998
Amount Ratio
Tier I (leverage) capital:
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
</TABLE>
62
<PAGE>
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(14) Parent Company Only
The following statements pertain to TrustCo Bank Corp NY (Parent Company):
Statements of Income
(dollars in thousands) Years Ended December 31,
Income: 1999 1998 1997
Dividends and interest
<S> <C> <C> <C>
from subsidiaries.............. $38,654 30,378 27,227
Gain on sale of securities....... 1,173 862 --
Income from other investments.... 689 453 379
---------------------------
Total income................. 40,516 31,693 27,606
---------------------------
Expense:
Operating supplies............... 57 78 98
Professional services ........... 37 17 33
Miscellaneous expense............ 312 107 110
---------------------------
Total expense................ 406 202 241
---------------------------
Income before income
taxes and undistributed
net income of subsidiaries....... 40,110 31,491 27,365
Income tax expense................ 523 420 45
---------------------------
Income before equity in
undistributed net
income of subsidiaries........... 39,587 31,071 27,320
(Distributions in excess of)/equity
in undistributed net income of
subsidiaries..................... (1,402) 3,944 4,855
---------------------------
Net income........................ $38,185 35,015 32,175
---------------------------
</TABLE>
<TABLE>
<CAPTION>
Statements of Condition
(dollars in thousands) December 31,
Assets: 1999 1998
<S> <C> <C>
Cash in subsidiary bank............ $ 16,990 13,938
Investments in subsidiaries........ 139,316 156,660
Securities available for sale...... 21,066 29,889
Other assets....................... 212 304
---------------------
Total assets................... $177,584 200,791
---------------------
Liabilities and shareholders' equity:
Accrued expenses and other liabilities $ 11,228 14,949
---------------------
Total liabilities.............. 11,228 14,949
---------------------
Shareholders' equity................ 166,356 185,842
---------------------
Total liabilities and shareholders'
equity $177,584 200,791
---------------------
</TABLE>
<TABLE>
Statements of Cash Flows
(dollars in thousands) Years Ended December 31,
<CAPTION>
1999 1998 1997
Increase/(decrease) in cash and
cash equivalents:
Cash flows from operating activities:
<S> <C> <C> <C>
Net income........................... $ 38,185 35,015 32,175
--------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Distributions in excess of/(equity
in undistributed net income)
of subsidiaries............... 1,402 (3,944) (4,855)
Gain on sales of securities....... (1,173) (862) --
(Increase)/decrease in other
assets........................ 92 159 833
Increase/(decrease) in accrued
expenses...................... (825) 24 14
--------------------------
Total adjustments............... (504) (4,623) (4,008)
--------------------------
Net cash provided by operating
activities........................ 37,681 30,392 28,167
--------------------------
Cash flows from investing activities:
Proceeds from sale of securities
available for sale.............. 3,715 3,530 --
Purchase of securities available
for sale.......................... (2,385) (1,761) (349)
Decrease in noninterest bearing
note receivable from subsidiary.... -- 1,117 --
--------------------------
Net cash provided by/(used in)
investing activities........... 1,330 2,886 (349)
--------------------------
Cash flows from financing activities:
Proceeds from exercise of stock
options............................ 2,580 895 1,624
Dividends paid...................... (29,570)(25,671) (22,438)
Payments to acquire treasury stock.. (15,961)(10,439) (7,735)
Proceeds from sale of treasury
stock............................. 6,992 5,395 3,026
---------------------------
Net cash used in financing
activities..................... (35,959) (29,820) (25,523)
---------------------------
Net increase in cash and cash
equivalents.................... 3,052 3,458 2,295
Cash and cash equivalents at
beginning of year............... 13,938 10,480 8,185
---------------------------
Cash and cash equivalents at
end of year..................... $ 16,990 13,938 10,480
---------------------------
Supplemental disclosure of
cash flow information:
Increase in dividends payable........ $ 657 930 839
Equity contribution to subsidiary -- -- 1,000
Change in unrealized (gain)/loss on
available for sale securities -
gross............................... 8,666 (4,591) (9,891)
Change in deferred tax effect on
unrealized (gain)/loss on securities
available for sale.................. (3,540) 1,876 4,008
----------------------------
</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
SECRETARY
William F. Terry
ASSISTANT SECRETARIES
Robert J. McCormick
Henry C. Collins
Board of Directors
Barton A. Andreoli
President
Towne Construction and Paving Corp.
Lionel O. Barthold
Retired Chairman
Power Technologies, Inc.
M. Norman Brickman
Vice President
D. Brickman, Inc.
Joseph Lucarelli
President
Bellevue Builders Supply 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,
Cazenovia College
James H. Murphy, D.D.S.
Orthodontist
Richard J. Murray, Jr.
Chief Executive Officer
R.J. Murray Co., Inc.
Kenneth C. Petersen
Retired President
Schenectady International, Inc.
William D. Powers
Chairman
New York Republican State Committee
William J. Purdy
President
Welbourne & Purdy Realty, Inc.
William F. Terry
Senior Vice President and Secretary
Trustco Bank
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
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
AND SECRETARY
William F. Terry
ADMINISTRATIVE VICE
PRESIDENT
Robert J. McCormick
AUDITOR
John C. Fay
HUMAN RESOURCES AND
QUALITY CONTROL
Vice President
Cheri J. Parvis
BANK AND TRUST
OPERATIONS,
ACCOUNTING/FINANCE,
PURCHASING, COMPLIANCE
Senior Vice President and
Chief Financial Officer
Robert T.Cushing
ACCOUNTING/FINANCE
Vice Presidents
Linda C. Christensen
Jeffrey S. Farbaniec
BANK/TRUST OPERATIONS
Vice Presidents
Kevin M. Curley
Ann M. Noble
COMPLIANCE
Vice President
Donald J. Csaposs
BRANCH ADMINISTRATION,
RETIREMENT/GOVERNMENT
ACCOUNTS, TRUST
DEPARTMENT, MARKETING
AND COMMUNITY RELATIONS
Senior Vice President
Nancy A. McNamara
BRANCH ADMINISTRATION
Vice President
Scot R. Salvador
Senior Officer
Eric W. Schreck
TRUST DEPARTMENT
Administrative Vice President
William M. McCartan
Vice Presidents
Patrick S. LaPorta
Robert Scribner
Trust Officers
John P. Fulgan
Richard W. Provost
Senior Investment Officer
Peter L. Gregory
Investment Officer
Michael E. Barringer
MARKETING/COMMUNITY RELATIONS
Marketing Officer
Robert M. Leonard
DATA PROCESSING,
LEGAL COUNSEL
Senior Vice President and
Secretary
William F. Terry
LEGAL COUNSEL
Administrative Vice President
Henry C. Collins
Data Processing
Thomas Mangum
LOAN DIVISION,
INSTALLMENT LOANS/
CREDIT CARDS, PREMISES
Administrative Vice President
Robert J. McCormick
COMMERCIAL LOANS
Vice President
George W. Wickswat
Senior Commercial Loan Officers
Deborah K. Appel
Commercial Loan Officer
Patrick M. Canavan
Paul R. Steenburgh
MORTGAGE LOANS
Officers
Robert O. Breton
Thomas M. Poitras
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 Road
Suite 9, Queensbury
Telephone: 798-7226
Rotterdam Office
Curry Road Shopping Ctr.
Rotterdam
Telephone: 355-8330
Rotterdam Square Office
93 W. Campbell Road
Rotterdam
Telephone: 377-2393
Route 9 Office - Latham
754 New Loudon Rd.
Latham
Telephone: 786-8816
Sheridan Plaza Office
1350 Gerling St.
Schenectady
Telephone: 377-8517
Shoppers' World Office
Old Rte. 146 and Plank Rd.
Clifton Park
Telephone: 383-6850
South Glens Falls Office
Glengate Shopping Plaza
133 Saratoga Road, Suite 1
South 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 15, 2000
10:00 AM
TrustCo Bank Corp NY
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 TrustCo Shareholder
Services Department 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. Requests and related inquiries should be directed to William F.
Terry, Secretary, TrustCo Bank Corp NY, P.O. Box 1082, Schenectady, New York
12301-1082.
NASDAQ SYMBOL: TRST
The Corporation's common stock trades on The Nasdaq Stock Market[sm] 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 Bank
Securities 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>
68
<PAGE>
69
<PAGE>
70
<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.
71
<PAGE>
Exhibits
Exhibit 23
KPMG, LLP
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. 333-78811), and Form
S-3 (No. 333-75035), of TrustCo Bank Corp NY and subsidiaries, of our report
dated January 18, 2000, relating to the consolidated statements of condition of
TrustCo Bank Corp NY and subsidiaries as of December 31, 1999 and 1998, 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,
1999, which report appears in the December 31, 1999 Annual Report on Form 10-K
of TrustCo Bank Corp NY.
/s/ KPMG LLP
March 22, 2000
72
<PAGE>
Exhibits
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 1999 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/Joseph Lucarelli
__________________________ _____________________
M. Norman Brickman Joseph Lucarelli
/s/Anthony J. Marinello /s/Robert A. McCormick
__________________________ _____________________
Dr. Anthony J. Marinello Robert A. McCormick
/s/Nancy A. McNamara /s/Dr. John S. Morris
__________________________ _________________________
Nancy A. McNamara Dr. John S. Morris
/s/James H. Murphy /s/Richard J. Murray, Jr.
_____________________ __________________________
Dr. James H. Murphy Richard J. Murray, Jr.
/s/Kenneth C. Petersen /s/ William D. Powers
_____________________ __________________________
Kenneth C. Petersen William D. Powers
/s/William J. Purdy /s/William F. Terry
_____________________ __________________________
William J. Purdy William F. Terry
Sworn to before me this
15th day of February 2000.
/s/Joan Clark
- -------------------------
Notary Public
Joan Clark
Notary Public, State of New York
Qualified in Albany County
No. 01CL4822282
Commission Expires Nov. 30, 2000
73
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 54,484
<INT-BEARING-DEPOSITS> 58
<FED-FUNDS-SOLD> 266,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 650,800
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,349,809
<ALLOWANCE> 55,820
<TOTAL-ASSETS> 2,364,022
<DEPOSITS> 1,994,909
<SHORT-TERM> 152,782
<LIABILITIES-OTHER> 49,975
<LONG-TERM> 0
0
0
<COMMON> 56,411
<OTHER-SE> 109,945
<TOTAL-LIABILITIES-AND-EQUITY> 2,364,022
<INTEREST-LOAN> 106,734
<INTEREST-INVEST> 44,440
<INTEREST-OTHER> 16,031
<INTEREST-TOTAL> 167,205
<INTEREST-DEPOSIT> 68,041
<INTEREST-EXPENSE> 74,013
<INTEREST-INCOME-NET> 93,192
<LOAN-LOSSES> 5,063
<SECURITIES-GAINS> (5,446)
<EXPENSE-OTHER> 45,636
<INCOME-PRETAX> 57,909
<INCOME-PRE-EXTRAORDINARY> 38,185
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,185
<EPS-BASIC> 0.71 <F1>
<EPS-DILUTED> 0.68 <F1>
<YIELD-ACTUAL> 4.16
<LOANS-NON> 4,433
<LOANS-PAST> 509
<LOANS-TROUBLED> 4,979
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 54,375
<CHARGE-OFFS> 7,788
<RECOVERIES> 4,170
<ALLOWANCE-CLOSE> 55,820
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 55,820
<FN>
<F1> EPS primary and EPS diluted have been restated to reflect a
two-for-one stock split in November 1999. Prior Financial Data
Schedules have been restated.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains restated primary EPS and diluted EPS
which have been restated to reflect a two-for-one stock split
in November 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 41,669
<INT-BEARING-DEPOSITS> 86
<FED-FUNDS-SOLD> 265,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 703,276
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,336,578
<ALLOWANCE> 55,719
<TOTAL-ASSETS> 2,385,360
<DEPOSITS> 2,013,444
<SHORT-TERM> 151,774
<LIABILITIES-OTHER> 48,036
<LONG-TERM> 0
0
0
<COMMON> 28,185
<OTHER-SE> 143,921
<TOTAL-LIABILITIES-AND-EQUITY> 2,385,360
<INTEREST-LOAN> 79,732
<INTEREST-INVEST> 33,293
<INTEREST-OTHER> 12,330
<INTEREST-TOTAL> 125,355
<INTEREST-DEPOSIT> 51,722
<INTEREST-EXPENSE> 56,123
<INTEREST-INCOME-NET> 69,232
<LOAN-LOSSES> 4,013
<SECURITIES-GAINS> (2,230)
<EXPENSE-OTHER> 35,055
<INCOME-PRETAX> 43,732
<INCOME-PRE-EXTRAORDINARY> 14,945
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,945
<EPS-BASIC> 0.54 <F1>
<EPS-DILUTED> 0.51 <F1>
<YIELD-ACTUAL> 4.09
<LOANS-NON> 4,654
<LOANS-PAST> 1,109
<LOANS-TROUBLED> 4,178
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 54,375
<CHARGE-OFFS> 6,186
<RECOVERIES> 3,517
<ALLOWANCE-CLOSE> 55,719
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 55,719
<FN>
<F1> EPS primary and EPS diluted have been restated to reflect a
two-for-one stock split in November 1999. Prior Financial Data
Schedules have been restated.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains restated primary EPS and diluted EPS
which have been restated to reflect a two-for-one stock split
in November 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 42,185
<INT-BEARING-DEPOSITS> 45
<FED-FUNDS-SOLD> 293,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 713,174
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,325,549
<ALLOWANCE> 55,656
<TOTAL-ASSETS> 2,409,016
<DEPOSITS> 2,044,731
<SHORT-TERM> 142,178
<LIABILITIES-OTHER> 45,579
<LONG-TERM> 0
0
0
<COMMON> 28,164
<OTHER-SE> 148,364
<TOTAL-LIABILITIES-AND-EQUITY> 2,409,016
<INTEREST-LOAN> 53,026
<INTEREST-INVEST> 21,840
<INTEREST-OTHER> 8,398
<INTEREST-TOTAL> 83,264
<INTEREST-DEPOSIT> 34,923
<INTEREST-EXPENSE> 37,852
<INTEREST-INCOME-NET> 45,412
<LOAN-LOSSES> 3,013
<SECURITIES-GAINS> (1,077)
<EXPENSE-OTHER> 23,555
<INCOME-PRETAX> 28,514
<INCOME-PRE-EXTRAORDINARY> 18,815
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,815
<EPS-BASIC> 0.35 <F1>
<EPS-DILUTED> 0.34 <F2>
<YIELD-ACTUAL> 4.01
<LOANS-NON> 5,437
<LOANS-PAST> 1,915
<LOANS-TROUBLED> 4,116
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 54,375
<CHARGE-OFFS> 4,677
<RECOVERIES> 2,945
<ALLOWANCE-CLOSE> 55,656
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 55,656
<FN>
<F1> EPS primary and EPS diluted have been restated to reflect a
two-for-one stock split in November 1999. Prior Financial Data
Schedules have been restated.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains restated primary EPS and diluted EPS
which have been restated to reflect a two-for-one stock split
in November 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 37,341
<INT-BEARING-DEPOSITS> 892
<FED-FUNDS-SOLD> 364,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 681,160
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,318,188
<ALLOWANCE> 54,772
<TOTAL-ASSETS> 2,434,163
<DEPOSITS> 2,060,558
<SHORT-TERM> 144,350
<LIABILITIES-OTHER> 44,038
<LONG-TERM> 0
0
0
<COMMON> 28,163
<OTHER-SE> 157,054
<TOTAL-LIABILITIES-AND-EQUITY> 2,434,163
<INTEREST-LOAN> 26,560
<INTEREST-INVEST> 10,890
<INTEREST-OTHER> 4,216
<INTEREST-TOTAL> 41,666
<INTEREST-DEPOSIT> 17,791
<INTEREST-EXPENSE> 19,239
<INTEREST-INCOME-NET> 22,427
<LOAN-LOSSES> 1,513
<SECURITIES-GAINS> (420)
<EXPENSE-OTHER> 12,202
<INCOME-PRETAX> 14,132
<INCOME-PRE-EXTRAORDINARY> 9,323
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,323
<EPS-BASIC> 0.17 <F1>
<EPS-DILUTED> 0.17 <F2>
<YIELD-ACTUAL> 3.94
<LOANS-NON> 7,801
<LOANS-PAST> 401
<LOANS-TROUBLED> 3,905
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 54,375
<CHARGE-OFFS> 2,282
<RECOVERIES> 1,166
<ALLOWANCE-CLOSE> 54,772
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 54,772
<FN>
<F1> EPS primary and EPS diluted have been restated to reflect a
two-for-one stock split in November 1999. Prior Financial Data
Schedules have been restated.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains restated primary EPS and diluted EPS
which have been restated to reflect a two-for-one stock split
in November 1999.
</LEGEND>
<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> 41,867
<INT-BEARING-DEPOSITS> 83
<FED-FUNDS-SOLD> 358,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 742,389
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,322,703
<ALLOWANCE> 54,375
<TOTAL-ASSETS> 2,485,080
<DEPOSITS> 2,107,414
<SHORT-TERM> 147,924
<LIABILITIES-OTHER> 43,900
<LONG-TERM> 0
0
0
<COMMON> 27,977
<OTHER-SE> 157,865
<TOTAL-LIABILITIES-AND-EQUITY> 2,485,080
<INTEREST-LOAN> 110,635
<INTEREST-INVEST> 40,879
<INTEREST-OTHER> 22,536
<INTEREST-TOTAL> 174,050
<INTEREST-DEPOSIT> 81,596
<INTEREST-EXPENSE> 88,347
<INTEREST-INCOME-NET> 85,703
<LOAN-LOSSES> 4,610
<SECURITIES-GAINS> 998
<EXPENSE-OTHER> 48,765
<INCOME-PRETAX> 54,450
<INCOME-PRE-EXTRAORDINARY> 35,015
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,015
<EPS-BASIC> 0.65 <F1>
<EPS-DILUTED> 0.63 <F2>
<YIELD-ACTUAL> 3.81
<LOANS-NON> 7,147
<LOANS-PAST> 1,454
<LOANS-TROUBLED> 3,782
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 53,455
<CHARGE-OFFS> 6,561
<RECOVERIES> 2,871
<ALLOWANCE-CLOSE> 54,375
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 54,375
<FN>
<F1> EPS primary and EPS diluted have been restated to reflect a
two-for-one stock split in November 1999. Prior Financial Data
Schedules have been restated.
</FN>
</TABLE>
