UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number 0-10592
September 30, 2000
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization
Identification No.)
320 STATE STREET, SCHENECTADY, NEW YORK 12305
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (518) 377-3311
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
----------- ------------
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Common
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes.(x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class of Common Stock as of November 13, 2000
--------------------------- ----------------------
$1 Par Value 61,415,780
<PAGE>
TrustCo Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Interim Financial Statements (Unaudited): Consolidated
Statements of Income for the Three Months and Nine Months
Ended September 30, 2000 and 1999 1
Consolidated Statements of Financial Condition as of
September 30, 2000 and December 31, 1999 2
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 3 - 4
Notes to Consolidated Interim Financial Statements 5 - 8
Independent Auditors' Review Report 9
Item 2. Management's Discussion and Analysis 10 - 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities --None
Item 4. Submissions of Matters to Vote of Security Holders - None
Item 5. Other Information - None
i
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ITEM 6.EXHIBTS AND REPORTS ON FORM 8-K
(a) EXHIBITS - NONE
(b) REPORTS ON FORM 8-K
A press release was issued on August 15, 2000 declaring a quarterly
cash dividend of $0.15 per share, payable October 2, 2000, to the
shareholders of record at the close of business on September 8, 2000.
The Company also announced that its Board of Directors approved a 15%
stock split. The additional shares are to be distributed on November
13, 2000 to shareholders of record on October 20, 2000.
On October 17, 2000, TrustCo Bank Corp NY ("Trustco") issued two press
releases with year to date and third quarter results for the period
ending September 30, 2000.
ii
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<TABLE>
<CAPTION>
TRUSTCO BANK CORP NY
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
Months Ended | 9 Months Ended
Sept 30 | Sept 30
2000 1999 | 2000 1999
|
Interest and dividend income: |
<S> <C> <C> <C> <C>
Interest and fees on loans $ 28,953 26,706 | 84,164 79,732
Interest on U. S. Treasuries and agencies 4,063 3,305 | 11,934 8,937
Interest on states and political |
subdivisions 2,114 1,785 | 5,950 5,383
Interest on mortgage-backed securities 3,674 4,172 | 11,277 12,495
Interest and dividends on other securities 1,448 2,191 | 4,736 6,478
Interest on federal funds sold 3,846 3,932 | 11,313 12,330
-------------------------------- -------------------------------
|
Total interest income 44,098 42,091 | 129,374 125,355
-------------------------------- -------------------------------
|
Interest expense: |
Interest on deposits: |
Interest-bearing checking 729 720 | 2,172 2,097
Savings 4,241 4,548 | 12,803 13,452
Money market deposit accounts 401 410 | 1,182 1,222
Time deposits 11,651 11,121 | 33,110 34,951
Interest on short-term borrowings 2,330 1,472 | 6,111 4,401
Interest on long-term debt 21 0 | 21 0
-------------------------------- -------------------------------
|
Total interest expense 19,373 18,271 | 55,399 56,123
-------------------------------- -------------------------------
|
Net interest income 24,725 23,820 | 73,975 69,232
Provision for loan losses 910 1,000 | 2,560 4,013
-------------------------------- -------------------------------
|
Net interest income after provision |
for loan losses 23,815 22,820 | 71,415 65,219
-------------------------------- -------------------------------
|
Noninterest income: |
Trust department income 2,296 2,007 | 6,566 5,918
Fees for other services to customers 2,406 2,242 | 6,768 6,491
Net loss on securities transactions (1,644) (1,153)| (5,013) (2,230)
Other 909 802 | 2,503 3,389
-------------------------------- -------------------------------
|
Total noninterest income 3,967 3,898 | 10,824 13,568
-------------------------------- -------------------------------
|
Noninterest expenses: |
Salaries and employee benefits 5,736 6,255 | 17,844 18,571
Net occupancy expense 1,099 1,118 | 3,471 3,562
Equipment expense 912 1,101 | 3,205 4,208
FDIC insurance expense 100 58 | 306 182
Professional services 534 599 | 2,096 1,847
Other real estate expenses / (income) (52) 29 | (354) (355)
Other 3,418 2,340 | 8,533 7,040
-------------------------------- -------------------------------
|
Total noninterest expenses 11,747 11,500 | 35,101 35,055
-------------------------------- -------------------------------
|
Income before taxes 16,035 15,218 | 47,138 43,732
Applicable income taxes 5,274 5,246 | 15,610 14,945
-------------------------------- -------------------------------
|
Net income $ 10,761 9,972 | 31,528 28,787
================================ ===============================
|
Net income per Common Share: |
- Basic $ 0.175 0.161 0.513 0.466
================================ ===============================
- Diluted $ 0.169 0.155 0.497 0.447
================================ ===============================
Per share data is adjusted for the effect of the 15% stock split declared August, 2000.
</TABLE>
See accompanying notes to consolidated interim financial statements.
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<TABLE>
<CAPTION>
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(dollars in thousands, except share data)
09/30/00 12/31/99
ASSETS:
<S> <C> <C>
Cash and due from banks $ 40,621 54,542
Federal funds sold 244,420 266,000
Other short-term funds 0 9,970
------------------ -----------------
Total cash and cash equivalents 285,041 330,512
Securities available for sale:
U. S. Treasuries and agencies 193,378 185,978
States and political subdivisions 160,361 132,560
Mortgage-backed securities 192,531 205,558
Other 92,416 116,734
------------------ -----------------
Total securities available for sale 638,686 640,830
------------------ -----------------
Loans:
Commercial 195,519 193,960
Residential mortgage loans 1,083,735 995,578
Home equity line of credit 131,602 138,339
Installment loans 26,290 22,891
------------------ -----------------
Total loans 1,437,146 1,350,768
------------------ -----------------
Less:
Allowance for loan losses 55,751 55,820
Unearned income 971 959
------------------ -----------------
Net loans 1,380,424 1,293,989
Bank premises and equipment 16,898 16,209
Real estate owned 1,722 1,771
Other assets 72,888 80,711
------------------ -----------------
Total assets $ 2,395,659 2,364,022
================== =================
LIABILITIES:
Deposits:
Demand $ 187,167 155,313
Interest-bearing checking 274,105 272,384
Savings accounts 611,891 641,650
Money market deposit accounts 57,416 58,557
Certificates of deposit (in denominations of
$100,000 or more) 118,925 115,636
Time deposits 743,809 751,369
------------------ -----------------
Total deposits 1,993,313 1,994,909
Short-term borrowings 165,223 152,782
Long-term debt 1,231 0
Accrued expenses and other liabilities 51,572 49,975
------------------ -----------------
Total liabilities 2,211,339 2,197,666
------------------ -----------------
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 shares authorized,
and 56,610,252 and 56,410,787 shares issued September 30, 2000
and December 31, 1999, respectively 56,610 56,411
Surplus 86,664 85,784
Undivided profits 55,969 48,491
Accumulated other comprehensive income/(loss):
Net unrealized gain/(loss) on securities available for sale 9,694 (2,452)
Treasury stock at cost - 3,231,031 and 3,002,378 shares at
September 30, 2000 and December 31, 1999, respectively (24,617) (21,878)
------------------ -----------------
Total shareholders' equity 184,320 166,356
------------------ -----------------
Total liabilities and shareholders' equity $ 2,395,659 2,364,022
================== =================
</TABLE>
See accompanying notes to consolidated interim financial statements.
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<TABLE>
<CAPTION>
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED September 30, 2000 1999
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income..............................................$ 31,528 28,787
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,436 1,779
Gain on sales of fixed assets.......................... (85) (1,250)
Provision for loan losses.............................. 2,560 4,013
Loss on sale of securities available for sale.......... 5,631 3,434
Gain on sale of securities available for sale.......... (618) (1,204)
Provision for deferred tax benefit..................... (544) (717)
Decrease in taxes receivable........................... 2,964 13,813
Increase in interest receivable........................ (952) (1,610)
Increase/(decrease) in interest payable................ 303 (442)
Increase in other assets............................... (1,393) (23,794)
Increase in accrued expenses........................... 980 4,551
-------- --------
Total adjustments.................................... 10,282 (1,427)
-------- --------
Net cash provided by operating activities................ 41,810 27,360
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale... 136,768 153,054
Purchase of securities available for sale.............. (185,162) (299,736)
Proceeds from maturities and calls
of securities available for sale...................... 68,458 132,369
Net increase in loans.................................. (68,415) (19,188)
Proceeds from dispositions of real estate owned........ 1,397 4,412
Proceeds from sales of fixed assets.................... 153 2,085
Payment for purchase of Lankmark Financial Corp,
net of cash acquired.................................. (1,639) ---
Capital expenditures................................... (1,659) (1,418)
-------- --------
Net cash used in investing activities................ (50,099) (28,422)
-------- --------
Cash flows from financing activities:
Net decrease in deposits............................... (23,010) (93,970)
Increase in short-term borrowing........................ 11,541 3,850
Proceeds from issuance of FHLB debt.................... 3 ---
Proceeds from exercise of stock options................ 1,079 1,545
Proceeds from sale of treasury stock................... 4,526 5,615
Purchase of treasury stock............................. (7,265) (11,991)
Dividends paid......................................... (24,056) (22,161)
-------- --------
Net cash used in financing activities................ (37,182) (117,112)
-------- --------
Net decrease in cash and cash equivalents................ (45,471) (118,174)
Cash and cash equivalents at beginning of period......... 330,512 424,929
-------- --------
Cash and cash equivalents at end of period..............$ 285,041 306,755
======== ========
See accompanying notes to consolidated interim financial statements. (Continued)
</TABLE>
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<TABLE>
<CAPTION>
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows Continued (Unaudited)
(dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NINE MONTHS ENDED September 30, 2000 1999
-------- --------
<S> <C> <C>
Interest paid.........................................$ 55,096 56,545
Income taxes paid...................................... 13,210 1,849
Transfer of loans to real estate owned................. 1,089 2,644
Increase/(decrease) in dividends payable............... (6) 27
Change in unrealized (gain)/loss on securities
available for sale-gross of deferred taxes............ (20,550) 26,217
Change in deferred tax effect on unrealized gain/(loss)
on securities available for sale...................... 8,404 (10,713)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased all of the capital stock of Landmark Financial Corp. for $2,386.
In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired 26,248
Cash paid for the Capital Stock 2,386
--------
Liabilities assumed 23,862
========
</TABLE>
See accompanying notes to consolidated interim financial statements.
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TRUSTCO BANK CORP NY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
In the opinion of the management of TrustCo Bank Corp NY (the Company), the
accompanying unaudited Consolidated Interim Financial Statements contain all
adjustments necessary to present fairly the financial position as of September
30, 2000, the results of operations for the three months and nine months ended
September 30, 2000 and 1999, and the cash flows for the nine months ended
September 30, 2000 and 1999. The accompanying Consolidated Interim Financial
Statements should be read in conjunction with the TrustCo Bank Corp NY year-end
Consolidated Financial Statements, including notes thereto, which are included
in TrustCo Bank Corp NY's 1999 Annual Report to Shareholders on Form 10-K.
2. EARNINGS PER SHARE
A reconciliation of the component parts of earnings per share for the three
month and nine month periods ended September 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
-----------------------------------------------------------
<S> <C> <C> <C>
For the quarter ended
September 30, 2000:
Basic EPS:
Net income available to $10,761 61,526 $0.175
common shareholders...........
Effect of Dilutive Securities:
Stock options................. ------ 2,053 -------
-----------------------------------------------------------
Diluted EPS $10,761 63,579 $0.169
===========================================================
For nine months ended
September 30, 2000:
Basic EPS:
Net income available to
common shareholders........... $31,528 61,492 $0.513
Effect of Dilutive Securities:
Stock options................. ------- 1,996 -------
-----------------------------------------------------------
Diluted EPS $31,528 63,488 $0.497
===========================================================
There were 1,504,200 stock options which were antidilutive as of September 30, 2000 and were
therefore excluded from the above calculations.
</TABLE>
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<TABLE>
<CAPTION>
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
----------------------------------------------------------
<S> <C> <C> <C>
For the quarter ended
September 30, 1999:
Basic EPS:
Net income available to
common shareholders........... $9,972 61,781 $0.161
Effect of Dilutive Securities:
Stock options................. ------ 2,564 -------
------------------------------------------------------------
Diluted EPS $9,972 64,345 $0.155
============================================================
For nine months ended
September 30, 1999:
Basic EPS:
Net income available to
common shareholders.......... $28,787 61,809 $0.466
Effect of Dilutive Securities:
Stock options................ ------- 2,538 -------
------------------------------------------------------------
Diluted EPS $28,787 64,347 $0.447
============================================================
Per share data have been adjusted for the 15% stock split declared in August 2000.
</TABLE>
3. COMPREHENSIVE INCOME
Comprehensive income includes the reported net income of a company adjusted for
items that are currently accounted for as direct entries to equity, such as the
mark to market adjustment on securities available for sale, foreign currency
items and minimum pension liability adjustments. At the Company, comprehensive
income represents net income plus other comprehensive income, which consists of
the net change in unrealized gains or losses on securities available for sale
for the period. Accumulated other comprehensive income represents the net
unrealized gains or losses on securities available for sale as of the balance
sheet dates.
Comprehensive income for the three month periods ended September 30, 2000 and
1999 was $17,149,000 and $5,211,000 respectively, and $43,674,000 and
$13,283,000 for the nine month periods ended September 30, 2000 and 1999,
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respectively. The following summarizes the components of other comprehensive
income:
<TABLE>
<CAPTION>
(dollars in thousands)
Unrealized gains on securities: Three months ended
September 30
2000 1999
-------------------------------------------
<S> <C> <C>
Unrealized holding gains/(losses) arising during period, net of
tax (pre-tax gain of $9,172 for 2000 and pre-tax loss of $9,207
for 1999) $5,416 (5,443)
Reclassification adjustment for net loss realized in net income
during the period, net of tax (pre-tax loss of $1,644 for 2000 and
pre-tax loss of $1,153 for 1999) (972) (682)
-------------------------------------------
Other comprehensive income/(loss)
$6,388 (4,761)
===========================================
(dollars in thousands)
Unrealized gains on securities: Nine months September 30
2000 1999
-------------------------------------------
Unrealized holding gains/(losses) arising during period, net of
tax (pre-tax gain of $15,537 for 2000 and pre-tax loss of $24,447
for 1999) $9,181 (16,823)
Reclassification adjustment for net gain/(loss) realized in net
income during period, net of tax (pre-tax loss of $5,013 for 2000
and pre-tax loss of $2,230 for 1999) (2,965) (1,319)
-------------------------------------------
Other comprehensive income/(loss) $12,146 (15,504)
===========================================
</TABLE>
4. IMPACT OF CHANGES IN ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Boards 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. As amended,
Statement 133 is effective for fiscal years beginning after June 15, 1999 to
fiscal years beginning after June 15, 2000. Management has estimated that if the
Company had adopted Statement 133 on September 30, 2000, the initial adoption
would not have had a material effect on the Company's financial statements. The
effect of adoption on January 1, 2001 cannot be estimated with certainty at this
time, as it is subject to unknown variables at that date such as (1) actual
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derivatives and related hedge positions at January 1, 2001, if any, (2) market
values of derivatives and related hedged items, and (3) further ongoing
interpretation of Statement 133 by the FASB.
- 8 -
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INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have reviewed the consolidated statement of financial condition of TrustCo
Bank Corp NY and subsidiaries (the Company) as of September 30, 2000, and the
related consolidated statements of income for the three month and nine month
periods ended September 30, 2000 and 1999, and the consolidated statements of
cash flows for the nine month periods ended September 30, 2000 and 1999. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards, the
consolidated statement of financial condition of TrustCo Bank Corp NY and
subsidiaries as of December 31, 1999 and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated January 18, 2000, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated statement of
financial condition as of December 31, 1999 is fairly stated, in all material
respects, in relation to the consolidated statement of financial condition from
which it has been derived.
/s/KPMG LLP
___________
KPMG LLP
Albany, New York
October 12, 2000
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TrustCo Bank Corp NY
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2000
The review that follows focuses on the factors affecting the financial condition
and results of operations of TrustCo Bank Corp NY ("TrustCo" or "Company")
during the three month and nine month periods ended September 30, 2000, with
comparisons to 1999 as applicable. Net interest income and net interest margin
are presented on a fully taxable equivalent basis in this discussion. The
consolidated interim financial statements and related notes, as well as the 1999
Annual Report to Shareholders should be read in conjunction with this review.
Amounts in prior period consolidated interim financial statements are
reclassified whenever necessary to conform to the current period's presentation.
Per share results have been adjusted for the 15% stock split declared in August
2000.
FORWARD-LOOKING STATEMENTS
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which are
not historical or current facts, are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, and are subject to certain risks and uncertainties that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. TrustCo wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases have affected
and in the future could affect TrustCo's actual results, and could cause
TrustCo's actual financial performance to differ materially from that expressed
in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3)
competition, (4) 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.
Following this discussion is the table "Distribution of Assets, Liabilities and
Shareholders' Equity: Interest Rates and Interest Differential" which gives a
detailed breakdown of TrustCo's average interest earning assets and interest
bearing liabilities for the three months and nine months ended September 30,
2000 and 1999.
OVERVIEW
TrustCo recorded net income of $10.8 million, or $0.169 of diluted earnings per
share for the three months ended September 30, 2000, as compared to net income
of $10.0 million or $0.155 of diluted earnings per share in the same period in
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1999. For the nine month period ended September 30, 2000, TrustCo recorded net
income of $31.5 million, or $0.497 of diluted earnings per share, as compared to
$28.8 million, or $0.447 of diluted earnings per share for the comparable period
in 1999.
The primary factors accounting for the year to date increases are:
o A 41 basis point increase in the net interest margin from 4.09% in
1999 to 4.50% in 2000, and,
o A reduction in the provision for loan losses of $1.5 million to
$2.6 million in 2000.
These positive factors were offset by:
o A decrease in the average balance of interest earning assets of
$63.7 million to $2.29 billion,
o A slight increase of $46 thousand in non-interest expense and,
o A $665 thousand increase in applicable income tax expenses.
ASSET/LIABILITY MANAGEMENT
The Company strives to generate superior earnings capabilities through a mix of
core deposits, funding a prudent mix of earning assets. This is, in its most
fundamental form, the essence of asset/liability management. Additionally,
TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of
net interest income to changes in interest rates to an acceptable level while
enhancing profitability both on a short-term and long- term basis.
ACQUISITION
During the third quarter 2000 TrustCo acquired Landmark Financial Corporation
and its wholly owned subsidiary Landmark Community Bank in a purchase business
combination. Landmark had total assets of approximately $25.7 million, deposits
of $21.6 million and shareholders' equity of $1.6 million at the time of the
acquisition. The total purchase price was approximately $3.2 million and the
transaction was a total cash acquisition. Goodwill of approximately $800
thousand was recognized as a result of the acquisition.
As a result of the relative immateriality of the balances acquired in the
Landmark acquisition the enclosed management discussion does not identify the
change in balances due to the acquisiton.
EARNING ASSETS
Total average interest earning assets decreased from $2.34 billion for the third
quarter of 1999 to $2.30 billion in 2000 with an average yield of 7.35% in 1999
and 7.87% in 2000. Income on earning assets increased by $2.2 million during
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this same time-period from $43.1 million in 1999 to $45.3 million in 2000. The
increase in interest income on earning assets was attributable to the increase
in yield on these assets, partially offset by the reduction in balances
outstanding.
For the nine month period ended September 30, 2000, the average balance of
interest earning assets was $2.29 billion, a decrease of $63.7 million from the
balance for the comparable period in 1999 of $2.35 billion. The average yield on
interest earning assets was 7.28% for 1999, compared to 7.74% in 2000. The
decrease in the average balance of earning assets did not offset the increase in
the yield earned on these assets, thereby resulting in a increase in interest
income of $4.4 million to $132.7 million for the nine months of 2000, compared
to $128.3 million for the nine months of 1999.
LOANS
The average balance of loans for the third quarter was $1.41 billion in 2000 and
$1.33 billion in 1999. The yield on loans increased from 8.02% in 1999 to 8.22%
in 2000. The combination of the higher average balances and higher rates
resulted in a increase in the interest income on loans by $2.2 million.
For the nine month period ended September 30, 2000, the average balance in the
loan portfolio was $1.38 billion compared to $1.33 billion for the comparable
period in 1999. The average yield increased from 8.04% in 1999 to 8.18% in 2000.
The increase in the average balance of loans outstanding and the increase in the
yield resulted in total interest income of $84.3 million in 2000 compared to
$79.9 million in 1999.
The increase in the yield in the loan portfolio was the result of increases in
the rates on loans. Since 1999, market interest rates on real estate loan
products have increased, and TrustCo offered rates that, when compared to local
competitors, were attractive to customers. This resulted in TrustCo being able
to increase the average balance of loans outstanding even though interest rates
had risen significantly between 1999 and 2000. The principal cause of the
increase in interest rates was the impact of the increases in the federal funds
rate during the second half of 1999 and into 2000 on the prime interest rate.
Consequently, the residential mortgage loan portfolio increased on average by
$52.4 million for the nine-month period ended September 30, 2000, compared to
September 30, 1999. This growth in the residential mortgage loan portfolio
caused the yield to increase slightly from 7.80% for the nine-month period ended
September 30, 1999 to 7.82% for the comparable period in 2000. The home equity
loan portfolio and the commercial real estate portfolio are also significantly
affected by the interest rates in the marketplace. Both products have rates tied
to various indexes such as prime rate. As the index changes so will the rates
earned on these assets. The commercial loan yield increased from 8.86% for the
nine-month period ended September 30, 1999 to 8.87% for the nine-month period
ended September 30, 2000. While the prime rate has a significant effect on the
yield earned in the commercial loan portfolio this portfolio is most influenced
by the rates offered by competing lending institutions. The Upstate New York
marketplace has many large national and local regional financial institutions
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<PAGE>
that compete for commercial loan products. Therefore, in order to maintain the
balances at the levels generated many of the commercial loans have been
refinanced from floating rate loans to fixed rates. Therefore, the changes in
the prime rate did not have the same impact on the commercial loan portfolio
yield that they did on the home equity loan portfolio yield. The home equity
loan portfolio experienced a increase in rates as the average yield increased
from 7.83% in 1999 to 9.09% in 2000.
SECURITIES AVAILABLE FOR SALE
During the third quarter of 2000, the average balance of securities available
for sale was $656.4 million with a yield of 7.51%, compared to $704.8 million
for the third quarter of 1999 with a yield of 7.02%. The combination of the
decrease in average balance offset by the increase in the yields caused a slight
decrease in interest income on securities available for sale of $48 thousand
between the third quarter of 2000 and 1999.
The nine month results reflect the same principal trends noted for the third
quarter. The total average balance of securities available for sale during the
nine months of 2000 was $663.9 million with an average yield of 7.39% compared
to an average balance for 1999 of $688.5 million with a yield of 6.98%.
FEDERAL FUNDS SOLD
During the third quarter of 2000, the average balance of federal funds sold was
$231.2 million with a yield of 6.62%, compared to the average balance for the
three month period ended September 30, 1999 of $303.8 million with an average
yield of 5.13%. The $72.6 million reduction in the average balance, offset with
the 149 basis points increase in the average yield, resulted in total interest
income on federal funds sold of $3.8 million for 2000 compared to $3.9 million
for 1999.
During the nine month period ended September 30, 2000, the average balance of
federal funds was $242.7 million with a yield of 6.23% compared to an average
balance of $337.2 million in 1999 with an average yield of 4.89%.
The federal funds portfolio is utilized to generate additional interest income
and liquidity as funds are waiting to be deployed into the loan and securities
portfolios. The reduction in the average balance for the three month and nine
month periods of 2000 compared to 1999 are the result of a increase in the loan
portfolio during those time periods, plus reductions in deposits funded through
the liquidation of federal funds sold.
The increase in the yield on federal funds sold between 1999 and 2000 is the
result of changes made by the Federal Reserve Bank for the target rate on
overnight federal funds investments. During 1999 the Federal Reserve Bank
increased its target rate to 6.50%.
FUNDING OPPORTUNITIES
TrustCo utilizes various funding sources to support its earning asset portfolio.
The vast majority of the Company's funding comes from traditional deposit
vehicles such as savings, interest bearing checking and time deposit accounts.
Also, TrustCo developed a Short-Term Investment Account, which was introduced in
1995 exclusively for customers of the Trust Department.
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<PAGE>
During the quarter, total interest bearing liabilities were $1.99 billion for
2000 and $2.03 billion for 1999. The rate paid on total interest bearing
liabilities was 3.57% for the third quarter of 1999, and 3.88% for 2000. Total
interest expense for the third quarter increased $1.1 million to $19.4 million
for 2000 compared to $18.3 million for 1999.
Similar changes in interest bearing liabilities were noted for the nine month
period as was discussed for the quarter. Total interest bearing liabilities were
$1.98 billion and $2.05 billion for the nine month periods ended September 30,
2000 and 1999, respectively. The rate paid on these balances increased from
3.65% for 1999 to 3.74% for 2000.
NET INTEREST INCOME
Taxable equivalent net interest income increased to $25.9 million for the third
quarter of 2000. The net interest spread also increased 21 basis points between
1999 and 2000 and the net interest margin increased by 25 basis points.
Similar increases were noted in taxable equivalent net interest income, net
interest spread and net interest margin for the nine month period ended
September 30, 2000, compared to the same period in 1999. Net interest income for
the first nine months of 2000 was $77.3 million, an increase of $5.1 million
over the $72.2 million for the first nine months of 1999. Net interest spread
increased 37 basis points to 4.00% and net interest margin increased 41 basis
points to 4.50% for the nine month period ended September 30, 2000, compared to
the nine month period ended September 30, 1999.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans which are those loans in a
nonaccrual status, loans that have been restructured, and loans past due three
payments or more and still accruing interest. Also included in the total of
nonperforming assets are foreclosed real estate properties, which are
categorized as real estate owned.
Impaired loans are considered to be those commercial and commercial real estate
loans in a nonaccrual status and loans restructured since January 1, 1995, when
the accounting standards required the identification, measurement and reporting
of impaired loans. The following will describe the nonperforming assets of
TrustCo as of September 30, 2000.
NONPERFORMING LOANS: Total nonperforming loans were $12.7 million at
September 30, 2000, an increase from the $9.9 million of nonperforming loans at
December 31, 1999 and September 30, 1999. Nonaccrual loans were $5.0 million at
September 30, 2000 up from the $4.4 million at December 31, 1999 and up from the
$4.7 million at September 30, 1999. Restructured loans were $6.5 million at
September 30, 2000 compared to $5.0 million at December 31, 1999 and $4.2
million at September 30, 1999.
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<PAGE>
Of the $12.7 million of nonperforming loans at September 30, 2000, all but
approximately $1 million are residential real estate or retail consumer loans.
Historically the vast majority of nonperforming loans were concentrated in the
commercial and commercial real estate portfolios. There has been a dramatic
shifting of nonperforming loans to the residential real estate and retail
consumer loan portfolio for several factors, including:
o The overall emphasis within TrustCo for residential real estate
originations,
o The relatively weak economic environment in the upstate New York
territory, and
o The reduction in real estate values in TrustCo's market area
that has occurred since the middle of the 1990's, thereby
causing a reduction in the collateral that supports the real
estate loans.
Consumer defaults and bankruptcies have increased dramatically over the last
several years and this has lead to an increase in defaults on loans. TrustCo
strives to identify borrowers that are experiencing financial difficulties and
to work aggressively with them to minimize losses or exposures.
Total impaired loans at September 30, 2000 of $6.2 million, consisted of
restructured retail loans. During the first nine months of 2000, there have been
$1.5 million of commercial loan charge offs, $358 thousand of consumer loan
charge offs and $2.1 million of mortgage loan charge offs as compared with $363
thousand of commercial loan charge offs, $443 thousand of consumer loan charge
offs and $5.4 million of mortgage loan charge offs in the first nine months of
1999. Recoveries during the first nine month periods have been $1.2 million in
2000 and $3.5 million in 1999.
REAL ESTATE OWNED: Total real estate owned of $1.7 million at September 30, 2000
decreased by $544 thousand since September 30, 1999.
ALLOWANCE FOR LOAN LOSSES: The balance of the allowance for loan losses is
maintained at a level that is, in management's judgment, representative of the
amount of the risk inherent in the loan portfolio.
At September 30, 2000, the allowance for loan losses was $55.8 million,
approximately equal to the allowance at December 31, 1999. The allowance
represents 3.88% of the loan portfolio as of September 30, 2000 compared to
4.17% at September 30, 1999. For the nine month periods, the provision charged
to expense was $2.6 million for 2000 and $4.0 million for 1999.
In deciding on the adequacy of the allowance for loan losses, management reviews
the current nonperforming loan portfolio as well as loans that are past due and
not yet categorized as nonperforming for reporting purposes. Also, there are a
number of other factors that are taken into consideration, including:
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<PAGE>
o The magnitude and nature of the recent loan charge offs and the
movement of charge offs to the residential real estate loan
portfolio,
o The growth in the loan portfolio and the implication that has
in relation to the economic climate in the bank's business
territory,
o Changes in underwriting standards in the competitive environment
in which TrustCo operates,
o Significant growth in the level of losses associated with
bankruptcies and the time period needed to foreclose, secure
and dispose of collateral, and
o The relatively weak economic environment in the upstate New York
territory combined with declining real estate prices.
Consumer bankruptcies and defaults in general have risen significantly during
the 1990's. This trend appears to be continuing as a result of economic strife
and the relative ease of access by consumers to additional credit. Job growth in
the upstate New York area has been modest to declining and there continues to be
a shifting of higher paying jobs in manufacturing and government to lower paying
service jobs.
In light of these trends, management believes the allowance for loan losses is
reasonable in relation to the risk that is present in its current loan
portfolio.
LIQUIDITY AND INTEREST RATE SENSITIVITY
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's
earnings performance and strong capital position enable the Company to raise
funds easily in the marketplace and to secure new sources of funding. The
Company actively manages its liquidity through target ratios established under
its liquidity policies. Continual monitoring of both historical and prospective
ratios allows TrustCo to employ strategies necessary to maintain adequate
liquidity. Management has also defined various degrees of adverse liquidity
situations, which could potentially occur, and has prepared appropriate
contingency plans should such a situation arise.
NONINTEREST INCOME
Total noninterest income for the three months ended September 30, 2000 was $4.0
million, a slight increase of approximately $69 thousand from the comparable
period in 1999. During these periods, the Company recorded net securities losses
$1.6 million for 2000 and $1.2 million for the comparable period in 1999.
Excluding these securities transactions, noninterest income increased from $5.1
million in the third quarter of 1999 to $5.6 million in 2000. The increase is
the result of additional Trust fee income and other miscellaneous items.
Similar results were also recognized for the nine months of 2000 compared to
1999. Total noninterest income was $10.8 million for 2000 compared to $13.6
million for 1999. Excluding net securities transactions, the balances for 2000
and 1999 would have been $15.8 million for both years.
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<PAGE>
NONINTEREST EXPENSES
Total noninterest expense for the third quarter of 2000 was $11.7 million up
slightly from $11.5 million in the third quarter of 1999. For the nine months
ended September 30, 2000 and 1999, total noninterest expense was $35.1 million.
INCOME TAXES
In the third quarter of 2000 and 1999, TrustCo recognized income tax expense of
$5.3 million and $5.2 million respectively. This resulted in an effective tax
rate of 32.9% for 2000 and 34.5% for 1999. For the nine months of 2000, total
income tax expense was $15.6 million compared to $14.9 million for 1999.
CAPITAL RESOURCES
Consistent with its long-term goal of operating a sound and profitable financial
organization, TrustCo strives to maintain strong capital ratios. New issues of
equity securities have not been required since traditionally, most of its
capital requirements are met through the capital retained in the Company (after
the dividends on the common stock).
Total shareholders' equity at September 30, 2000 was $184.3 million, a increase
of $18.0 million from the year-end of 1999 balance of $166.4 million. The change
in the shareholders' equity between year-end 1999 and September 30, 2000
reflects the net income retained by TrustCo and a $12.1 million increase in the
net unrealized gain, net of tax, on securities available for sale, offset by a
$2.7 million increase in the amount of Treasury stock.
TrustCo declared dividends of $0.391 per share during the first nine months of
2000 compared to $0.359 in 1999. These resulted in a dividend payout ratio of
76.3% in 2000 and 77.1% in 1999. The Company achieved the following capital
ratios as of September 30, 2000 and 1999:
SEPTEMBER 30, MINIMUM REGULATORY
2000 1999 GUIDELINES
TIER 1 RISK ADJUSTED ----------------------------------------
CAPITAL 13.76% 13.27 4.00
TOTAL RISK ADJUSTED
CAPITAL 15.05 14.56 8.00
In addition, at September 30, 2000 and 1999, the consolidated equity to total
assets ratio (excluding the mark to market effect of securities available for
sale) was 7.32% and 7.09%, respectively.
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<PAGE>
<TABLE>
<CAPTION>
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields on
interest earning assets and annualized rates on interest bearing libilities of
TrustCo (adjusted for tax equivalency) for each of the reported periods. Non-
accrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized depreciation of $242
thousand, net of tax, in the available for sale portfolio in 2000 and unrealized
appreciation of $12.4 million, net of tax, in 1999. The subtotals contained in
the following table are the arithmetic totals of the items in that category.
Nine Months Nine Months
2000 1999
-------------------------------------------------------------------------------------------
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans......................$ 194,192 $ 12,919 8.87%$ 188,158 $ 12,496 8.86% 423 403 20
Residential mortgage loans............. 1,023,825 60,035 7.82% 971,454 56,825 7.80% 3,210 3,070 140
Home equity lines of credit ........... 135,443 9,216 9.09% 142,433 8,337 7.83% 879 (634) 1,513
Installment loans...................... 21,716 2,128 13.09% 23,068 2,224 12.89% (96) (149) 53
---------- ------- ---------- ------- ----- ----- -----
Loans, net of unearned income.......... 1,375,176 84,298 8.18% 1,325,113 79,882 8.04% 4,416 2,690 1,726
Securities available for sale:
U.S. Treasuries and agencies.......... 213,017 11,964 7.49% 164,603 8,968 7.26% 2,996 2,712 284
Mortgage-backed securities............ 209,039 11,277 7.19% 250,156 12,495 6.66% (1,218) (2,614) 1,396
States and political subdivisions..... 146,063 8,812 8.04% 133,563 7,927 7.91% 885 752 133
Other ................................ 95,792 4,745 6.61% 140,168 6,658 6.34% (1,913) (2,354) 441
---------- ------- ---------- ------- ----- ----- -----
Total securities available for sale. 663,911 36,798 7.39% 688,490 36,048 6.98% 750 (1,504) 2,254
Federal funds sold..................... 242,720 11,313 6.23% 337,158 12,330 4.89% (1,017) (5,076) 4,059
Other short-term investments........... 5,787 261 6.03% 549 21 5.16% 240 236 4
---------- ------- ---------- ------- ----- ----- -----
Total Interest earning assets........ 2,287,594 132,670 7.74% 2,351,310 128,281 7.28% 4,389 (3,654) 8,043
Allowance for loan losses.............. (56,298) ------- (56,387) ------- ----- ----- -----
Cash and noninterest earning assets.... 133,137 132,765
---------- ----------
Total assets........................$ 2,364,433 $ 2,427,688
========== ==========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking..........$ 272,205 2,172 1.07%$ 263,363 2,097 1.06% 75 72 3
Money market accounts............... 57,817 1,182 2.73% 59,878 1,222 2.73% (40) (40) ---
Savings............................... 632,842 12,803 2.70% 665,342 13,452 2.70% (649) (649) ---
Time deposits......................... 859,594 33,110 5.15% 916,549 34,951 5.10% (1,841) (2,352) 511
---------- ------- ---------- ------- ----- ----- -----
Total interest bearing deposits...... 1,822,458 49,267 3.61% 1,905,132 51,722 3.63% (2,455) (2,969) 514
Short-term borrowings.................. 158,067 6,111 5.16% 147,994 4,401 3.98% 1,710 317 1,393
Long-term debt......................... 411 21 6.07% --- --- --- 21 21 ---
---------- ------- ---------- ------- ----- ----- -----
Total interest bearing liabilities... 1,980,936 55,399 3.74% 2,053,126 56,123 3.65% (724) (2,631) 1,907
Demand deposits........................ 165,578 ------- 152,041 ------- ----- ----- -----
Other liabilities...................... 44,895 40,729
Shareholders' equity................... 173,024 181,792
---------- ----------
Total liab. & shareholders' equity..$ 2,364,433 $ 2,427,688
========== ==========
Net interest income.................... 77,271 72,158 5,113 (1,023) 6,136
------- ------- ----- ----- -----
Net interest spread.................... 4.00% 3.63%
Net interest margin (net interest
income to total interest earning
assets)............................. 4.50% 4.09%
Tax equivalent adjustment 3,296 2,926
------- -------
Net interest income per book........ $ 73,975 $ 69,232
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields on
interest earning assets and annualized rates on interest bearing libilities of
TrustCo (adjusted for tax equivalency) for each of the reported periods. Non-
accrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized appreciation of $5.4
million and $4.1 million, net of tax, in the available for sale portfolio for
the third quarter of 2000 and 1999, respectively. The subtotals contained in
the following table are the arithmetic totals of the items in that category.
Third Quarter Third Quarter
2000 1999
--------------------------------------------------------------------------------------------
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans......................$ 196,308 $ 4,364 8.88%$ 191,311 $ 4,207 8.78% 157 109 48
Residential mortgage loans............. 1,057,399 20,716 7.84% 979,395 18,983 7.75% 1,733 1,526 207
Home equity lines of credit ........... 132,762 3,159 9.47% 139,132 2,819 8.04% 340 (745) 1,085
Installment loans...................... 23,681 758 12.73% 22,063 746 13.41% 12 184 (172)
----------- -------- ---------- -------- ----- ----- -----
Loans, net of unearned income.......... 1,410,150 28,997 8.22% 1,331,901 26,755 8.02% 2,242 1,074 1,168
Securities available for sale:
U.S. Treasuries and agencies.......... 214,439 4,073 7.60% 185,205 3,315 7.16% 758 547 211
Mortgage-backed securities............ 200,502 3,674 7.33% 245,678 4,172 6.79% (498) (2,196) 1,698
States and political subdivisions..... 155,058 3,131 8.08% 132,997 2,629 7.91% 502 444 58
Other ................................ 86,448 1,446 6.68% 140,929 2,256 6.40% (810) (1,444) 634
----------- -------- ---------- -------- ----- ----- -----
Total securities available for sale. 656,447 12,324 7.51% 704,809 12,372 7.02% (48) (2,649) 2,601
Federal funds sold..................... 231,188 3,846 6.62% 303,783 3,932 5.13% (86) (4,118) 4,032
Other short-term investments........... 6,483 98 6.00% ----- ---- --- 98 98 ---
----------- -------- ---------- -------- ----- ----- -----
Total Interest earning assets........ 2,304,268 45,265 7.87% 2,340,493 43,059 7.35% 2,206 (5,595) 7,801
Allowance for loan losses.............. (56,121) -------- (56,444) -------- ----- ----- -----
Cash and noninterest earning assets.... 140,616 123,400
----------- ---------
Total assets........................$ 2,388,763 $ 2,407,449
========== =========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking..........$ 271,940 729 1.07%$ 268,140 720 1.07% 9 9 ---
Money market accounts............... 58,368 401 2.73% 59,573 410 2.73% (9) (9) ---
Savings............................... 624,035 4,241 2.70% 667,762 4,548 2.70% (307) (307) ---
Time deposits......................... 863,790 11,651 5.37% 890,775 11,121 4.95% 530 (1,820) 2,350
----------- -------- ---------- -------- ----- ----- -----
Total interest bearing deposits...... 1,818,133 17,022 3.72% 1,886,250 16,799 3.53% 223 (2,127) 2,350
Short-term borrowings.................. 168,354 2,330 5.51% 145,871 1,472 4.00% 858 250 608
Long-term debt......................... 1,223 21 6.07% --- --- --- 21 21 ---
----------- -------- ---------- -------- ----- ----- -----
Total interest bearing liabilities... 1,987,710 19,373 3.88% 2,032,121 18,271 3.57% 1,102 (1,856) 2,958
Demand deposits........................ 172,271 -------- 157,956 -------- ----- ----- -----
Other liabilities...................... 47,354 42,887
Shareholders' equity................... 181,428 174,485
--------- ----------
Total liab. & shareholders' equity..$ 2,388,763 $ 2,407,449
========== =========
Net interest income.................... 25,892 24,788 1,104 (3,739) 4,843
-------- -------- ----- ----- -----
Net interest spread.................... 3.99% 3.78%
Net interest margin (net interest
income to total interest earning
assets)............................. 4.50% 4.25%
Tax equivalent adjustment 1,167 968
-------- --------
Net interest income per book........ $ 24,725 $ 23,820
======== ========
</TABLE>
<PAGE>
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk
position since December 31, 1999. Other types of market risk, such as
foreign exchange rate risk and commodity price risk do not arise in the
normal course of the Company's business activities.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
Date: November 14, 2000 By: /s/Robert A. McCormick
------------------------
Robert A. McCormick
President and
Chief Executive Officer
Date: November 14, 2000 By: /s/Robert T. Cushing
------------------------
Robert T. Cushing
Vice President and Chief
Financial Officer
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