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, 2002
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Common
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes.(x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class of Common Stock as of October 31, 2002
--------------------------- ----------------------
$1 Par Value 74,219,101
1
TrustCo Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. Interim Financial Statements (Unaudited): Consolidated
Statements of Income for the Three Months and Nine Months Ended 1
September 30, 2002 and 2001
Consolidated Statements of Financial Condition as of September 2
30, 2002 and December 31, 2001
Consolidated Statements of Cash Flows for the Nine Months Ended 3 - 4
September 30, 2002 and 2001
Notes to Consolidated Interim Financial Statements 5 - 9
Independent Accountants' Review Report 10
Item 2. Management's Discussion and Analysis 11- 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Controls and Procedures
Item 4. 24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities --None
Item 4. Submissions of Matters to Vote of Security Holders - None
Item 5. Other Information - None
2
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
Reg S-K (Item 601)
Exhibit No. Description Page No.
- -------------------------------------------------------------------------------
3(ii)a Amended and Restated Bylaws of TrustCo Bank Corp NY 29
10(a) Consulting Agreement Between TrustCo Bank Corp NY
and Robert A. McCormick 40
99.1 Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 Of The Sarbanes-
Oxley Act of 2002 42
(b) Reports on Form 8-K
TrustCo Bank Corp NY ("TrustCo") filed a current report on Form 8-K on
August 19, 2002 regarding three press releases issued on August 19,
2002. The first press release advised that a quarterly cash dividend
of $0.15 per share was declared, payable October 1, 2002, to the
shareholders of record at the close of business on September 6, 2002.
The second press release announced that TrustCo will pay dividends at
60 cents a share for 2002, the same rate as the previous year and
anticipates no stock splits or dividend increases for the next two to
three years. The third press release disclosed a Shareholders' letter
stating information regarding payment of dividends and TrustCo's
intent to maintain the current dividend level while gearing up for
growth.
TrustCo filed a current report on Form 8-K on September 24, 2002,
advising that on August 22, 2002 Trustco Bank N.A. ("Trustco") entered
into a formal agreement with the Office of the Comptroller of the
Currency (OCC). The agreement related to technical violations of the
Federal Bank Secrecy Act and the U.S.A. Patriot Act.
TrustCo filed a current report on Form 8-K on October 15, 2002,
regarding two press releases with year to date and third quarter
results for the period ending September 30, 2002.
TrustCo filed a current report on Form 8-K on October 18, 2002,
announcing a major reorganization at the executive officer level.
Signatures 25
Certification 26 - 27
3
TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)
3 Months Ended 9 Months Ended
September 30 September 30
2002 2001 2002 2001
Interest and dividend income:
Interest and fees on loans $ 28,031 29,963 85,026 89,752
Interest on U. S. Treasuries and agencies 2,822 2,704 8,763 8,604
Interest on states and political
subdivisions 3,012 3,028 8,913 8,060
Interest on mortgage-backed securities 1,030 2,098 3,573 8,576
Interest and dividends on other securities 1,204 1,351 3,684 3,414
Interest on federal funds sold and other short term investments 2,408 2,510 6,563 9,534
------------------------------------------------------
Total interest income 38,507 41,654 116,522 127,940
------------------------------------------------------
Interest expense:
Interest on deposits:
Interest-bearing checking 773 778 2,354 2,237
Savings 3,230 4,175 9,924 12,207
Money market deposit accounts 675 440 1,771 1,257
Time deposits 9,115 11,179 28,290 35,273
Interest on short-term borrowings 732 1,465 2,429 5,730
Interest on long-term debt 8 11 24 35
-----------------------------------------------------
Total interest expense 14,533 18,048 44,792 56,739
-----------------------------------------------------
Net interest income 23,974 23,606 71,730 71,201
Provision for loan losses 300 750 1,120 3,365
-----------------------------------------------------
Net interest income after provision
for loan losses 23,674 22,856 70,610 67,836
-----------------------------------------------------
Noninterest income:
Trust department income 1,374 1,912 5,256 5,942
Fees for other services to customers 2,470 2,714 7,705 7,677
Net gain on securities transactions 2,399 696 6,171 3,905
Other 621 686 2,220 2,291
-----------------------------------------------------
Total noninterest income 6,864 6,008 21,352 19,815
-----------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 5,639 6,252 16,920 19,475
Net occupancy expense 1,402 1,348 4,121 4,148
Equipment expense 691 914 2,222 3,234
FDIC insurance expense 91 93 271 281
Professional services 701 634 2,416 1,951
Outsourced services 119 ----- 1,124 -----
Charitable contributions 113 70 1,427 333
Other real estate expenses / (income) (113) (209) (137) (397)
Other 2,779 3,261 9,168 8,539
-----------------------------------------------------
Total noninterest expenses 11,422 12,363 37,532 37,564
-----------------------------------------------------
Income before taxes 19,116 16,501 54,430 50,087
Applicable income taxes 5,825 4,910 16,200 15,526
-----------------------------------------------------
Net income $ 13,291 11,591 38,230 34,561
=====================================================
Net income per Common Share:
- Basic $ 0.183 0.163 0.530 0.486
=====================================================
- Diluted $ 0.179 0.157 0.514 0.470
=====================================================
See accompanying notes to consolidated interim financial statements.
4
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(dollars in thousands, except share data)
September 30, December 31,
2002 2001
ASSETS: (Unaudited)
Cash and due from banks $ 65,172 60,121
Federal funds sold and other short term investments 441,446 338,452
------------------ -----------------
Total cash and cash equivalents 506,618 398,573
Securities available for sale:
U. S. Treasuries and agencies 233,644 160,372
States and political subdivisions 239,724 216,566
Mortgage-backed securities 55,122 96,621
Other 124,170 113,541
------------------ -----------------
Total securities available for sale 652,660 587,100
------------------ -----------------
Loans:
Commercial 200,046 212,423
Residential mortgage loans 1,150,866 1,201,723
Home equity lines of credit 135,179 122,332
Installment loans 17,240 20,979
------------------ -----------------
Total loans 1,503,331 1,557,457
------------------ -----------------
Less:
Allowance for loan losses 54,280 57,203
Unearned income 643 771
------------------ -----------------
Net loans 1,448,408 1,499,483
Bank premises and equipment 19,606 18,312
Real estate owned 298 603
Other assets 47,837 74,550
------------------ -----------------
Total assets $ 2,675,427 2,578,621
================== =================
LIABILITIES:
Deposits:
Demand $ 212,795 195,390
Interest-bearing checking 318,383 295,514
Savings accounts 719,243 649,081
Money market deposit accounts 129,425 75,620
Certificates of deposit (in denominations of
$100,000 or more) 118,980 128,887
Time deposits 770,697 748,414
------------------ -----------------
Total deposits 2,269,523 2,092,906
Short-term borrowings 120,465 218,219
Long-term debt 472 624
Accrued expenses and other liabilities 56,219 61,045
------------------ -----------------
Total liabilities 2,446,679 2,372,794
------------------ -----------------
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 shares authorized,
and 79,069,401 and 76,168,795 shares issued at September 30,
2002 and December 31, 2001, respectively 79,069 76,169
Surplus 84,322 75,355
Undivided profits 69,686 63,940
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale, net of tax 29,097 21,668
Treasury stock at cost - 5,036,995 and 4,862,718 shares at
September 30, 2002 and December 31, 2001, respectively (33,426) (31,305)
------------------ -----------------
Total shareholders' equity 228,748 205,827
------------------ -----------------
Total liabilities and shareholders' equity $ 2,675,427 2,578,621
================== =================
See accompanying notes to consolidated interim financial statements.
5
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, 2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 38,230 34,561
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,576 1,735
Gain on sales of bank premises and equipment (296) (17)
Provision for loan losses 1,120 3,365
Loss on sale of securities available for sale 1,349 676
Gain on sale of securities available for sale (7,520) (4,581)
Provision for deferred tax expense/(benefit) (3,740) (1,297)
Decrease in taxes receivable 19,164 7,415
Decrease in interest receivable 544 642
Decrease in interest payable (427) (801)
(Increase)/decrease in other assets 5,393 (2,273)
Increase/(decrease) in accrued expenses (4,559) 2,397
-------- --------
Total adjustments 12,604 7,261
-------- --------
Net cash provided by operating activities 50,834 41,822
-------- --------
Cash flows from investing activities:
Proceeds from sales and calls 250,766 286,900
of securities available for sale
Purchase of securities available for sale (308,882) (256,569)
Proceeds from maturities
of securities available for sale 11,004 3,712
Net (increase)/decrease in loans 49,728 (79,943)
Proceeds from dispositions of real estate owned 837 2,265
Proceeds from sales of bank premises and equipment 342 110
Capital expenditures (2,717) (2,917)
-------- --------
Net cash provided by/(used in) investing activities 1,078 (46,442)
-------- --------
Cash flows from financing activities:
Net increase in deposits 176,617 60,071
Net decrease in short-term borrowing (97,754) (18,100)
Repayment of long-term debt (152) (214)
Proceeds from exercise of stock options 11,867 3,359
Proceeds from sale of treasury stock 5,812 5,020
Purchase of treasury stock (7,933) (9,647)
Dividends paid (32,324) (27,705)
-------- --------
Net cash provided by financing activities 56,133 12,784
-------- --------
Net increase in cash and cash equivalents 108,045 8,164
Cash and cash equivalents at beginning of period 398,573 345,446
-------- --------
Cash and cash equivalents at end of period $ 506,618 353,610
======== ========
See accompanying notes to consolidated interim financial statements. (Continued)
6
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, 2002 2001
-------- --------
Interest paid $ 45,219 57,540
Income taxes paid 789 9,314
Transfer of loans to real estate owned 227 1,271
Increase in dividends payable 160 87
Change in unrealized (gain)/loss on securities
available for sale-gross of deferred taxes (12,277) (6,147)
Change in deferred tax effect on unrealized gain/(loss)
on securities available for sale 4,848 2,551
See accompanying notes to consolidated interim financial statements.
7
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, 2002, the results of operations for the three months and nine months ended
September 30, 2002 and 2001, and the cash flows for the nine months ended
September 30, 2002 and 2001. 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 2001 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, 2002 and 2001 follows:
Weighted Average Shares
(In thousands, Net Outstanding Per Share
except per share data) Income Amounts
----------------- -------------------------- -------------------
For the quarter ended September 30, 2002:
Basic EPS:
Net income available to $13,291 72,499 $0.183
common shareholders
Effect of Dilutive Securities:
Stock options. ------ 1,826 -------
----------------- -------------------------- -------------------
Diluted EPS $13,291 74,325 $0.179
================= ========================== ===================
For nine months ended September 30, 2002:
Basic EPS:
Net income available to
common shareholders $38,230 72,146 $0.530
Effect of Dilutive Securities:
Stock options ------- 2,257 -------
----------------- -------------------------- -------------------
Diluted EPS $38,230 74,403 $0.514
================= ========================== ===================
There were 837,750 stock options, which were antidilutive as of September 30,
2002 and were therefore excluded from the September 30, 2002 calculations.
8
Weighted Average Shares
(In thousands, Net Outstanding Per Share
except per share data) Income Amounts
----------------- -------------------------- -------------------
For the quarter ended September 30, 2001:
Basic EPS:
Net income available to
common shareholders $11,591 71,164 $0.163
Effect of Dilutive Securities:
Stock options ------ 2,495 -------
----------------- -------------------------- -------------------
Diluted EPS $11,591 73,659 $0.157
================= ========================== ===================
For nine months ended September 30, 2001:
Basic EPS:
Net income available to
common shareholders $34,561 71,060 $0.486
Effect of Dilutive Securities:
Stock options ------- 2,496 -------
----------------- -------------------------- -------------------
Diluted EPS $34,561 73,556 $0.470
================= ========================== ===================
There were no antidilutive stock options during the quarter or nine months
ended September 30, 2001.
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, after tax, in unrealized gains or losses on securities available
for sale for the period. Accumulated other comprehensive income represents the
net after tax 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, 2002 and
2001 was $13,580,000 and $12,949,000 respectively, and $45,659,000 and
$38,157,000 for the nine month periods ended September 30, 2002 and 2001,
respectively. The following summarizes the components of other comprehensive
income:
9
(dollars in thousands)
Unrealized gains on securities: Three months ended September 30
2002 2001
-------------------------------
Unrealized holding gains arising during period, net of tax (pre-tax gain of
$2,866 for 2002 and pre-tax gain of $2,992 for
2001) $1,727 1,770
Reclassification adjustment for net gain realized in net income
during the period, net of tax (pre-tax gain of $2,399 for 2002 and
pre-tax gain of $696 for 2001) 1,438 412
--------------------------------
Other comprehensive income $ 289 1,358
================= =============
(dollars in thousands)
Unrealized gains on securities: Nine months September 30
2002 2001
-------------------------------
Unrealized holding gains arising during period, net of tax (pre-tax gain of
$18,448 for 2002 and pre-tax gain of $10,052 for
2001) $11,129 5,906
Reclassification adjustment for net gain realized in net income
during period, net of tax (pre-tax gain of $6,171 for 2002 and
pre-tax gain of $3,905 for 2001) 3,700 2,310
-------------------------------
Other comprehensive income $ 7,429 3,596
================= =============
4. Impact of Changes in Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 141, "Business Combinations"(Statement 141) and Statement No. 142, "Goodwill
and Other Intangible Assets" (Statement 142). Statement 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Statement 141 also specifies criteria that intangible
assets acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill. Statement 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. Statement 142
also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of".
10
The Company was required to adopt the provisions of Statement 141 in July 2001
and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001, will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 were
amortized prior to the adoption of Statement 142.
As of December 31, 2001 and September 30, 2002, the Company had $553 thousand of
unamortized goodwill. Amortization expense related to goodwill was $62 thousand
for the twelve months ended December 31, 2001. No impairment loss was required
at adoption of Statement 142.
The adoption of these Statements did not have a material effect on the Company's
consolidated financial statements.
In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations," (Statement 143) which addresses financial accounting
and reporting for obligations associated with retirement of tangible long-lived
assets and the associated asset retirement costs. Statement 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Earlier application is permitted. The Company does not expect the adoption of
this statement to have a material effect on its consolidated financial
statements.
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," (Statement 144) which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. Statement 144 supersedes Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement also supersedes the accounting and reporting provisions of APB
Opinion No. 30 "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." This statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company adopted the provisions of Statement No. 144 effective January 1, 2002.
The adoption of this statement did not have a material effect on the Company's
consolidated financial statements.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (Statement 145). Statement 145 rescinds Statement No. 4, "Reporting
Gains and Losses from Extinguishment of Debt" (Statement 4), which required
gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. Upon
adoption of Statement 145, companies will be required to apply the criteria in
Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in
determining the classification of gains and losses resulting from the
extinguishment of debt. Additionally, Statement 145 amends Statement No. 13,
"Accounting for Leases," to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-leaseback transactions. The provisions of Statement 145
related to the rescission of Statement 4 are effective for fiscal years
beginning after May 15, 2002. All other provisions of Statement 145 are
effective for transactions occurring and/or financial statements issued on or
after May 15, 2002. The implementation of Statement 145 provisions, which were
effective May 15, 2002 did not have a material effect on the Company's
consolidated financial statements. The implementation of the remaining
provisions is not expected to have a material effect on the Company's
consolidated financial statements.
11
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (Statement 146), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)".
Statement 146 is effective for exit or disposal activities initiated after
December 31, 2002. The Company does not expect the adoption of this statement to
have a material effect on its consolidated financial statements.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions" (Statement 147). Statement 147 amends Statement No. 72,
"Accounting for Certain Acquisitions of Banking or Thrift Institutions,"
Statement 144, and FASB Interpretation No. 9. Except for transactions between
two or more mutual enterprises, this statement removes acquisitions of financial
institutions from the scope of both Statement No. 72 and FASB Interpretation No.
9 and requires that those transactions be accounted for in accordance with
Statement 141 and Statement 142. In addition, this statement amends Statement
144 to include in its scope long-term customer-relationship intangible assets of
financial institutions. The provisions of Statement 147 are to be applied
retroactively to January 1, 2002 and are effective after September 30, 2002. The
Company does not expect the adoption of this statement to have a material effect
on its consolidated financial statements.
12
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have reviewed the consolidated statement of financial condition of TrustCo
Bank Corp NY and subsidiaries (the Company) as of September 30, 2002, and the
related consolidated statements of income for the three-month and nine-month
periods ended September 30, 2002 and 2001, and the consolidated statements of
cash flows for the nine-month periods ended September 30, 2002 and 2001. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards, generally
accepted in the United States of America, the consolidated statement of
financial condition of TrustCo Bank Corp NY and subsidiaries as of December 31,
2001, 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, 2002, 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, 2001 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 11, 2002
13
TrustCo Bank Corp NY
Management's Discussion and Analysis
September 30, 2002
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, 2002, with
comparisons to 2001 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 2001
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.
Forward-looking Statements
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which are
not historical or current facts, are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, and are subject to certain risks and uncertainties that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. TrustCo wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases have affected
and in the future could affect TrustCo's actual results, and could cause
TrustCo's actual financial performance to differ materially from that expressed
in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3)
competition, (4) changes in the regulatory environment, and (5) changes in
general business and economic trends. The foregoing list should not be construed
as exhaustive, and the Company disclaims any obligation to subsequently revise
any forward-looking statements to reflect events or circumstances after the date
of such statements, or to reflect the occurrence of anticipated or unanticipated
events.
Following this discussion is the table "Distribution of Assets, Liabilities and
Shareholders' Equity: Interest Rates and Interest Differential" which gives a
detailed breakdown of TrustCo's average interest earning assets and interest
bearing liabilities for the three months and nine months ended September 30,
2002 and 2001.
Overview
TrustCo recorded net income of $13.3 million, or $0.179 of diluted earnings per
share for the three months ended September 30, 2002, as compared to net income
of $11.6 million or $0.157 of diluted earnings per share in the same period in
2001. For the nine month period ended September 30, 2002, TrustCo recorded net
income of $38.2 million, or $0.514 of diluted earnings per share, as compared to
$34.6 million, or $0.470 of diluted earnings per share for the comparable period
in 2001.
14
The primary factors accounting for the year to date increases are:
.. A $224.1 million increase in the average balance of interest earning assets
between 2001 and 2002,
.. A reduction in the provision for loan losses from $3.4 million in 2001 to
$1.1 million in 2002, and
.. An increase in noninterest income from $19.8 million in 2001 to $21.4
million in 2002.
These increases were partially offset by:
.. A decrease of 30 basis points in the net interest margin from 4.27% in
2001 to 3.97% in 2002.
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.
The following Management's Discussion and Analysis for the third quarter and
first nine months of 2002 compared to the comparable periods in 2001 is greatly
affected by the change in interest rates in the marketplace in which TrustCo
competes. Included in the 2001 Annual Report to Shareholders is a description of
the effect interest rates had on the results of the year 2001 compared to 2000.
Most of the same market factors discussed in the 2001 Annual Report also had a
significant impact on 2002 results and are being updated by this Management
Discussion and Analysis.
TrustCo competes with other financial service providers based upon many factors
including quality of service, convenience of operations, and rates paid on
deposits and charged on loans. The absolute level of interest rates and changes
in rates and customers' expectations with respect to the direction of interest
rates have a significant impact on the volume of loan and deposit originations
in any particular period.
Interest rates have changed dramatically in response to the slowing economic
conditions. One of the most important interest rates utilized to control
economic activity is the "federal funds" rate. This is the rate utilized within
the banking system for overnight borrowings for the highest credit quality
institutions. The federal funds rate was 6% at the beginning of 2001 and had
decreased to 3.00% by the end of the third quarter of 2001. In 2002 the federal
funds rates was consistent from the beginning of the year and throughout the
third quarter at 1.75%. The federal funds rate affects the level of other
interest rates in the economy, most specifically the prime rate. The prime rate
was 9% at the beginning of 2001 and had decreased to 6.00% by the end of the
third quarter of 2001. By the end of 2001, the prime rate had declined to 4.75%
and has remained there for the first nine months of 2002.
15
Earning Assets
Total average interest earning assets increased from $2.39 billion for the third
quarter of 2001 to $2.64 billion in 2002 with an average yield of 7.27% in 2001
and 6.14% in 2002. Income on earning assets decreased by $3.1 million during
this same time-period from $43.5 million in 2001 to $40.4 million in 2002. The
decrease in interest income on earning assets was attributable to the decrease
in yield on these assets, partially offset by the increase in balances
outstanding.
For the nine month period ended September 30, 2002, the average balance of
interest earning assets was $2.59 billion, an increase of $224.1 million from
the average balance for the comparable period in 2001 of $2.36 billion. The
average yield on interest earning assets was 7.48% for 2001, compared to 6.28%
in 2002. The increase in the average balance of earning assets did not offset
the decrease in the yield earned on these assets, thereby resulting in interest
income of $122.0 million for the nine months of 2002, compared to $132.6 million
for the nine months of 2001.
Loans
The average balance of loans for the third quarter was $1.52 billion in 2002 and
$1.53 billion in 2001. The yield on loans decreased from 7.82% in 2001 to 7.38%
in 2002. The combination of the lower average balances coupled by lower rates
resulted in a decrease in the interest income on loans by $1.9 million.
For the nine month period ended September 30, 2002, the average balance in the
loan portfolio was $1.53 billion compared to $1.51 billion for the comparable
period in 2001. The average yield decreased from 7.96% in 2001 to 7.43% in 2002.
The increase in the average balance of loans outstanding partially offset the
decrease in the yield resulted in total interest income of $89.9 million in 2001
compared to $85.1 million in 2002.
During the first nine months of 2002 the average balance of the loan portfolio
increased primarily as a result of the increase in the residential mortgages.
The average balance of residential mortgage loans was $1.18 billion in 2002
compared to $1.15 billion in 2001, an increase of 2.2%. TrustCo actively markets
the residential loan products within its market territory. Mortgage loan rates
are affected by a number of factors including, the prime rate, the federal funds
rate; rates set by competitors and secondary market participants.
As noted earlier, market interest rates have dropped significantly as a result
of national economic policy in the United States. Though interest rates on the
residential mortgage loan products decreased during this time period they did
not decrease as much as the reduction in the target federal funds rate or the
prime rate.
16
The balance of loans, net, as of September 30, 2002 was $1.45 billion as
compared to $1.50 billion at December 31, 2001. This decrease is the result of
loan refinancing to other institutions by customers, principally in the
residential real estate category. The residential loan portfolio of Trustco Bank
reflects the effect of historical lows in the 30 year mortgage market place.
Management has reduced the rate offered on residential mortgage loans. However,
in light of the strategic decision to retain loans in its portfolio these rates
are somewhat higher than rates offered in the secondary market.
The impact of the decrease in the benchmark interest rate indexes (prime rate,
federal funds rate, etc.) is apparent in the decrease in the yield earned in the
commercial and home equity loan portfolios. The average yield earned on these
loan types in 2002 were 67 bp and 282 bp, respectively less than the average
yields earned in the first nine months of 2002.
Securities Available for Sale
During the third quarter of 2002, the average balance of securities available
for sale was $569.0 million with a yield of 6.95%, compared to $569.3 million
for the third quarter of 2001 with a yield of 7.70%. The combination of the
decrease in average balance and the decrease in the yields caused a decrease in
interest income on securities available for sale of $1.1 million between the
third quarter of 2001 and 2002.
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 2001 was $570.4 million with an average yield of 7.76% compared
to an average balance for 2002 of $559.6 million with a yield of 7.23%.
Federal Funds Sold
During the third quarter of 2002, the average balance of federal funds sold was
$519.4 million with a yield of 1.74%, compared to the average balance for the
three month period ended September 30, 2001 of $287.2 million with an average
yield of 3.46%. The $232.2 million increase in the average balance, offset with
the 172 basis points decrease in the average yield, resulted in total interest
income on federal funds sold of $2.3 million for 2002 compared to $2.5 million
for 2001.
During the nine month period ended September 30, 2002, the average balance of
federal funds was $477.7 million with a yield of 1.75% compared to an average
balance of $284.9 million in 2001 with an average yield of 4.47%.
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 increase in federal funds balances between the first nine months of 2001 and
2002 reflects a decision to hold funds in overnight deposits versus making
longer-term investments in loans or securities available for sale. The decision
to retain additional liquidity in the form of federal fund balances is a result
of the historical lows in the market for such alternative investments while
keeping the balances available for investment once rates rise. The effect of
this decision by TrustCo is to have significantly more funds invested in federal
funds portfolio at significantly lower interest rates during 2002 with
expectations that opportunities for reinvestment at higher levels will be
available later in 2002 or in 2003.
17
Funding Opportunities
TrustCo utilizes various funding sources to support its earning asset portfolio.
The vast majority of the Company's funding comes from traditional deposit
vehicles such as savings, interest bearing checking and time deposit accounts.
During the quarter, total average interest bearing liabilities were $2.28
billion for 2002 and $2.07 billion for 2001. The rate paid on total interest
bearing liabilities was 3.46% for the third quarter of 2001, and 2.53% for 2002.
Total interest expense for the third quarter decreased approximately $3.5
million to $14.5 million for 2002 compared to $18.0 million for 2001.
Similar changes in interest bearing liabilities were noted for the nine-month
period as was discussed for the quarter except the average yield decreased from
3.71% in 2001 to 2.67% in 2002. Total average interest bearing liabilities were
$2.04 billion for the nine-month period ended September 30, 2001 and $2.24
billion for 2002.
Demand deposit balances increased $16.9 million during the third quarter of 2002
compared to the third quarter of 2001. Demand deposits averaged $179.4 million
in 2001 and $196.3 million in 2002. On a year to date basis, demand deposits
were $192.3 million compared to $179.1 million in 2001.
TrustCo has experienced a significant increase during the quarter in the average
balances of all deposit categories as well as in average short term borrowings.
This inflow is a result of a combination of factors including the significant
swings in the stock and bond market during the quarter, the new TrustCo branch
openings and focused deposit marketing and advertising. Recognizing that certain
of these trends may be short lived and customers may choose to move balances
back into the stock and bond market, management has invested these deposits in
primarily short term securities. In an effort to retain the deposit balances on
a longer-term basis the Bank performs certain marketing and customer contacts to
cross sell additional services.
TrustCo manages the growth of the banking subsidiaries and retains sufficient
capital at the bank level to remain well capitalized. Growth in the balance
sheet during the quarter and on a year to date basis in 2002 has been
significant, increasing 9.6% during the quarter and 9.2% for the year 2002
compared to 2001. As part of the balance sheet management, approximately $85
million of the short-term borrowings (primarily the Trustco Short Term
Investment Account) were allowed to leave the Company during September. This
provides TrustCo with asset growth capability without any additional capital
requirements. Management believes growth in the core banking relationships is
ultimately more valuable than short term borrowings.
Short-term borrowings for the quarter were $208.7 million in 2001 compared to
$217.7 million in 2002. The average yield decreased during this time period from
2.79% to 1.33% for the third quarter of 2002. The largest component of
short-term borrowings is the Trustco Short Term Investments, which is only
available to Trustco Trust Department customers. The increased balances in this
account are a result of trust customers temporarily investing their funds in
money market type instruments while waiting for some stability in the equity and
bond markets.
18
Net Interest Income
Taxable equivalent net interest income increased to $25.8 million for the third
quarter of 2002. The net interest spread decreased 20 basis points between 2001
and 2002 and the net interest margin decreased by 34 basis points.
Similar changes were noted in taxable equivalent net interest income, net
interest spread and net interest margin for the nine-month period ended
September 30, 2002, compared to the same period in 2001. Net interest income for
the first nine months of 2002 was $77.2 million, an increase of $1.4 million
from the $75.8 million for the first nine months of 2001. Net interest spread
decreased 16 basis points to 3.61% and net interest margin decreased 30 basis
points to 3.97% for the nine month period ended September 30, 2002, compared to
the nine month period ended September 30, 2001.
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, 2002.
Nonperforming loans: Total nonperforming loans were $6.3 million at September
30, 2002, a decrease from the $7.6 million of nonperforming loans at September
30, 2001. Nonaccrual loans were $1.3 million at September 30, 2002 down from the
$1.8 million at September 30, 2001. Restructured loans were $4.6 million at
September 30, 2002 compared to $5.4 million at September 30, 2001.
Of the $6.3 million of nonperforming loans at September 30, 2002, all but
approximately $1.1 million are residential real estate or retail consumer loans.
In the past the majority of nonperforming loans were concentrated in the
commercial and commercial real estate portfolios. There has been a shifting of
nonperforming loans to the residential real estate and retail consumer loan
portfolio for several factors, including:
. The overall emphasis within TrustCo for residential real estate
originations,
. The relatively weak economic environment in the upstate
New York territory, and
. The reduction in real estate values in TrustCo's market area
that has occurred since the middle of the 1990's, thereby
causing a reduction in the collateral that supports the real
estate loans.
19
In New York State consumer defaults and bankruptcies have increased 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, 2002 of $5.5 million, consisted of
restructured retail loans and nonaccrual commercial and commercial real estate
loans. During the first nine months of 2002, there have been $874 thousand of
commercial loan charge offs and $5.2 million of mortgage and consumer loan
charge offs as compared with $1.0 million of commercial loan charge offs and
$4.4 million of mortgage and consumer loan charge offs in the first nine months
of 2001. Recoveries during the first nine month periods have been $2.0 million
in 2002 and $2.3 million in 2001.
During the third quarter of 2002 TrustCo had loan charge offs of $2.8 million
compared to $2.3 million in the comparable period in 2001. The increase is the
result of charge offs taken on previously restructured loans. These loans had
been subject to restructuring of loan terms in prior years. However, during the
third quarter of 2002 charge offs were taken based upon the financial condition
of the borrowers. Traditionally TrustCo utilizes an aggressive charge off
strategy to identify loans experiencing financial difficulties so as to minimize
loss exposure and to maximize the amount of principal collections. This approach
has been successful in helping to control the overall asset quality of the loan
portfolio. These additional charge offs are another aspect of this aggressive
charge off approach.
Real estate owned: Total real estate owned of $298 thousand at September 30,
2002 decreased by $726 thousand since September 30, 2001.
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, 2002, the allowance for loan losses was $54.3 million, a
decrease from the allowance at September 30, 2001 of $56.6 million. The
allowance represents 3.61% of the loan portfolio as of September 30, 2002
compared to 3.65% at September 30, 2001. For the nine month periods, the
provision charged to expense was $1.1 million for 2002 and $3.4 million for
2001.
In deciding on the adequacy of the allowance for loan losses, management reviews
the current nonperforming loan portfolio as well as loans that are past due and
not yet categorized as nonperforming for reporting purposes. Also, there are a
number of other factors that are taken into consideration, including:
..The magnitude and nature of the recent loan charge offs and the movement of
charge offs to the residential real estate loan portfolio,
..The growth in the loan portfolio and the implication that has in relation
to the economic climate in the bank's business territory,
..Changes in underwriting standards in the competitive environment in which
TrustCo operates,
..Significant growth in the level of losses associated with bankruptcies in New
York State 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.
20
Consumer bankruptcies and defaults in general have risen 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, 2002 was $6.9
million, a $856 thousand increase from the comparable period in 2001. During
these periods, the Company recorded net securities gains of $2.4 million for
2002 and $696 thousand for the comparable period in 2001. Excluding these
securities transactions, noninterest income decreased from $5.3 million in the
third quarter of 2001 to $4.5 million in 2002. The decrease is the result of a
reduction in Trust fee income and other service charges to customers in the loan
origination area. The reduction in Trust fee income is the result of market
conditions that have negatively affected the underlying trust assets.
Similar results were also recognized for the nine months of 2002 compared to
2001. Total noninterest income was $21.4 million for 2002 compared to $19.8
million for 2001. Excluding net securities transactions, the balances for 2002
and 2001 would have been $15.2 million for 2002 and $15.9 million for 2001.
Net securities transactions have been significant for both the nine month and
quarterly results in 2002 and 2001. The level of these transactions reflects
management's decision to liquidate certain investments as interest rates were at
historically low levels and therefore the gains on security sales were high.
These sales provide the Company with additional liquidity for potential
reinvestment at higher interest rates later in 2002 or in 2003. Management also
has begun liquidating certain equity investments that had accumulated over the
last several years as part of the expansion program to acquire other companies.
21
Noninterest Expenses
Total noninterest expense for the third quarter of 2002 was $11.4 million down
from $12.4 million in the third quarter of 2001. For the nine months ended
September 30, 2002 and 2001, total noninterest expense was $37.5 million
compared to $37.6 million.
Salaries and employee benefits cost decreased from $6.3 million for the
third-quarter of 2001 to $5.6 million for the comparable period in 2002. The
reduction in salaries and employee benefits is the result of the reduction in
salary of the Chief Executive Officer and the ongoing outsourcing efforts
undertaken by the Company in 2002. The Chief Executive Officer's salary was
reduced by $450,000 which in turn affected the amount reserved for the incentive
bonus plans. In addition, the supplemental executive retirement plan for the
Chief Executive Officer was also capped at the level of the accrual as of
December 31, 2001. The outsourcing efforts have the effect of reducing salary
and benefit costs and to replace these costs with contract serviced expenses.
Included in the outsourced contract service expenses are one-time charges
associated with the conversion. The complete conversion to the outside service
contractor is expected prior to year-end 2002.
Equipment expense decreased approximately $1.0 million during the nine months of
2002 compared to 2001 as a result of the reduced computer expense due to
contracts not being renewed in 2002 as a result of the conversion.
Charitable contributions expense is up approximately $1.0 million as a result of
an additional contribution made in the second quarter of 2002 in recognition of
the 100 year anniversary of the Company. This additional contribution was made
in the form of a donation of appreciated stock to assist in funding the
operating cost of a not-for-profit activity located in the Capital District
region.
Income Taxes
In the third quarter of 2002 and 2001, TrustCo recognized income tax expense of
$5.8 million and $4.9 million respectively. This resulted in an effective tax
rate of 30.5% for 2002 and 29.8% for 2001. For the nine months of 2002, total
income tax expense was $16.2 million compared to $15.5 million for 2001.
As previously noted in prior periods Management's Discussion and Analysis,
during the third quarter the Personnel Committee of the Board of Directors
amended the Executive Officer Incentive Plan thereby eliminating the automatic
deferral of payments resulting from the execution of employment contracts. The
payment of this benefit will be deductible by the Company. Therefore, no change
in the effective tax rate is anticipated at this time for the remainder of 2002.
22
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, 2002 was $228.7 million, an increase
of $22.9 million from the year-end of 2001 balance of $205.8 million. The change
in the shareholders' equity between year-end 2001 and September 30, 2002
reflects the net income retained by TrustCo and a $7.4 million increase in the
net unrealized gain, net of tax, on securities available for sale, offset by a
$2.1 million increase in the amount of Treasury stock.
TrustCo declared dividends of $0.450 per share during the first nine months of
2002 compared to $0.391 in 2001. These resulted in a dividend payout ratio of
85.0% in 2002 and 80.4% in 2001. The Company achieved the following capital
ratios as of September 30, 2002 and 2001:
September 30, Minimum Regulatory
2002 2001 Guidelines
--------------------------------------------
Tier 1 risk adjusted
capital 14.43% 13.35% 4.00
Total risk adjusted
capital 15.71% 14.74% 8.00
In addition, at September 30, 2002 and 2001, the consolidated equity to total
assets ratio (excluding the mark to market effect of securities available for
sale) was 7.54% and 7.28%, respectively.
23
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 liabilities of
TrustCo (adjusted for tax equivalency) for each of the reported periods. Non-
accrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized appreciation ,net of
tax, in the available for sale portfolio of $29.0 million and $24.7 Million in
the third quarter of 2002 and 2001, respectively. The subtotals contained in
the following table are the arithmetic totals of the items in that category.
Third Quarter Third Quarter
2002 2001
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans......................$ 200,162 $ 3,946 7.88% $207,347 $ 4,381 8.45% (435) (148) (287)
Residential mortgage loans............. 1,171,384 22,007 7.51% 1,179,865 22,836 7.74% (829) (163) (666)
Home equity lines of credit ........... 131,006 1,549 4.69% 124,086 2,078 6.64% (529) 689 (1,218)
Installment loans...................... 17,006 550 12.84% 21,079 702 13.21% (152) (132) (20)
--------- ------- --------- ------- ----- ----- -----
Loans, net of unearned income.......... 1,519,558 28,052 7.38% 1,532,377 29,997 7.82% (1,945) 246 (2,191)
Securities available for sale:
U.S. Treasuries and agencies.......... 192,805 2,827 5.87% 148,322 2,714 7.32% 113 2,662 (2,549)
Mortgage-backed securities............ 57,548 1,030 7.16% 103,906 2,098 8.07% (1,068) (852) (216)
States and political subdivisions..... 225,598 4,460 7.91% 224,784 4,455 7.93% 5 56 (51)
Other ................................ 93,076 1,570 6.74% 92,336 1,698 7.35% (128) 87 (215)
--------- ------- --------- ------- ----- ----- -----
Total securities available for sale. 569,027 9,887 6.95% 569,348 10,965 7.70% (1,078) 1,953 (3,031)
Federal funds sold..................... 519,433 2,276 1.74% 287,207 2,506 3.46% (230) 5,986 (6,216)
Other short-term investments........... 28,245 135 1.90% 541 2 1.33% 133 132 1
--------- ------- --------- ------- ----- ----- -----
Total Interest earning assets........ 2,636,263 40,350 6.14% 2,389,473 43,470 7.27% (3,120) 8,317 (11,437)
Allowance for loan losses.............. (56,570) ------- (58,067) ------- ----- ----- -----
Cash and noninterest earning assets.... 168,713 177,341
--------- ---------
Total assets.......................$ 2,748,406 $ 2,508,747
========= =========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking..........$ 308,167 773 0.99% $291,840 778 1.06% (5) 175 (180)
Money market accounts............... 133,763 675 2.00% 64,156 440 2.73% 235 938 (703)
Savings............................. 723,321 3,230 1.77% 624,272 4,175 2.65% (945) 3,252 (4,197)
Time deposits....................... 895,306 9,115 4.04% 882,704 11,179 5.02% (2,064) 1,040 (3,104)
--------- ------- --------- ------- ----- ----- -----
Total interest bearing deposits.... 2,060,557 13,793 2.66% 1,862,972 16,572 3.53% (2,779) 5,405 (8,184)
Short-term borrowings.................. 217,725 732 1.33% 208,655 1,465 2.79% (733) 411 (1,144)
Long-term debt......................... 487 8 5.86% 722 11 6.07% (3) ---- (3)
--------- ------- --------- ------- ----- ----- -----
Total interest bearing liabilities... 2,278,769 14,533 2.53% 2,072,349 18,048 3.46% (3,515) 5,816 (9,331)
Demand deposits........................ 196,291 ------- 179,435 ------- ----- ----- -----
Other liabilities...................... 52,659 51,508
Shareholders' equity................... 220,687 205,455
--------- ---------
Total liab. & shareholders' equity..$ 2,748,406 $ 2,508,747
========= =========
Net interest income.................... 25,817 25,422 395 2,501 (2,106)
------- ------- ----- ----- -----
Net interest spread.................... 3.61% 3.81%
Net interest margin (net interest
income to total interest earning
assets)............................. 3.93% 4.27%
Tax equivalent adjustment 1,843 1,816
------- -------
Net interest income per book........ $ 23,974 $ 23,606
======= =======
24
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 liabilities of
TrustCo (adjusted for tax equivalency) for each of the reported periods. Non-
accrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized appreciation
net of tax, in the available for sale portfolio of $25.8 million and unrealized
appreciation of $22.5 million for the nine months ended September 30, 2002 and 2001,
respectively. The subtotals contained in the following table are the arithmetic
totals of the items in that category.
Nine Months Nine Months
2002 2001
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans......................$ 205,003 $12,208 7.93% $ 204,699 $ 13,206 8.60% (998) 32 (1,030)
Residential mortgage loans............1,177,606 66,662 7.55% 1,152,431 67,345 7.79% (683) 2,031 (2,714)
Home equity lines of credit ......... 127,081 4,516 4.75% 126,665 7,175 7.57% (2,659) 40 (2,699)
Installment loans...................... 17,870 1,713 12.83% 22,366 2,138 12.78% (425) (439) 14
--------- ------- --------- ------- ----- ----- -----
Loans, net of unearned income........ 1,527,560 85,099 7.43% 1,506,161 89,864 7.96% (4,765) 1,664 (6,429)
Securities available for sale:
U.S. Treasuries and agencies......... 178,727 8,780 6.55% 152,141 8,635 7.57% 145 1,832 (1,687)
Mortgage-backed securities............ 66,105 3,573 7.21% 147,091 8,576 7.77% (5,003) (4,417) (586)
States and political subdivisions.... 222,121 13,203 7.93% 198,059 11,861 7.98% 1,342 1,487 (145)
Other ................................ 92,669 4,773 6.87% 73,098 4,109 7.50% 664 1,205 (541)
--------- ------- --------- ------- ----- ----- -----
Total securities available for sale. 559,622 30,329 7.23% 570,389 33,181 7.76% (2,852) 107 (2,959)
Federal funds sold.................... 477,699 6,252 1.75% 284,897 9,532 4.47% (3,280) 6,432 (9,712)
Other short-term investments........... 20,869 317 2.03% 182 2 1.35% 315 314 1
--------- ------- --------- ------- ----- ----- -----
Total Interest earning assets..... 2,585,750 121,997 6.28% 2,361,629 132,579 7.48% (10,582) 8,517 (19,099)
Allowance for loan losses.............. (57,231) ------- (57,399) ------- ----- ----- -----
Cash and noninterest earning assets... 172,007 169,063
--------- ---------
Total assets.....................$ 2,700,526 $ 2,473,293
========= =========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking..........$ 302,312 2,354 1.04% $ 281,828 2,237 1.06% 117 181 (64)
Money market accounts............... 114,629 1,771 2.07% 61,579 1,257 2.73% 514 1,039 (525)
Savings............................... 698,173 9,924 1.90% 608,083 12,207 2.68% (2,283) 2,433 (4,716)
Time deposits......................... 889,722 28,290 4.25% 883,070 35,274 5.34% (6,984) 435 (7,419)
--------- ------- --------- ------- ----- ----- -----
Total interest bearing deposits.....2,004,836 42,339 2.82% 1,834,560 50,975 3.71% (8,636) 4,088 (12,724)
Short-term borrowings.................. 233,704 2,429 1.39% 207,509 5,730 3.69% (3,301) 1,051 (4,352)
Long-term debt......................... 533 24 5.92% 796 35 5.83% (11) ---- (11)
--------- ------- --------- ------- ----- ----- -----
Total interest bearing liabilities..2,239,073 44,792 2.67% 2,042,865 56,740 3.71% (11,948) 5,139 (17,087)
Demand deposits........................ 192,298 ------- 179,072 ------- ----- ----- -----
Other liabilities...................... 54,427 49,909
Shareholders' equity.................. 214,728 201,447
--------- ---------
Total liab. & shareholders' equity$ 2,700,526 $ 2,473,293
========= =========
Net interest income.................... 77,205 75,839 1,366 3,378 (2,012)
------- ------- ----- ----- -----
Net interest spread.................... 3.61% 3.77%
Net interest margin (net interest
income to total interest earning
assets)............................. 3.97% 4.27%
Tax equivalent adjustment 5,475 4,638
------- -------
Net interest income per book........ $ 71,730 $ 71,201
======= =======
25
Agreement with Regulators
On August 22, 2002 Trustco Bank, National Association entered into a Formal
Agreement (the Agreement) with the Office of the Comptroller of the Currency
(OCC). The OCC conducted a compliance examination of Trustco Bank and noted
certain technical exceptions in the area of the Bank Secrecy Act. The Agreement
requires review by the Board of Directors of certain Bank activities within
stipulated time periods with the final review to be completed by November 22,
2002. The Bank has complied with the requirements of the Agreement and
anticipates completing all areas within the time period stipulated.
Subsequent Event
Effective as of October 11, 2002 the Company has completed the conversion to the
outside data processing servicer. It is anticipated that conversion related
follow up items would continue into the fourth quarter of 2002. The contract
stipulates that the monthly cost for these services will be billed once the
Company has accepted the conversion, which is anticipated to occur during the
fourth quarter.
26
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, 2001. 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.
Item 4.
Controls and Procedures
Evaluation of disclosure controls and procedures. The Company maintains controls
and procedures designed to ensure that information required to be disclosed in
the reports that the Company files or submits under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Based upon their evaluation of those controls and procedures performed within 90
days of the filing date of this report, the Chief Executive and Chief Financial
Officer of the Company concluded that the Company's disclosure controls and
procedures were adequate.
Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the Chief
Executive and Chief Financial Officer.
27
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, 2002 /s/Robert T. Cushing
-------------------------
Robert T. Cushing
Chief Executive Officer
and Chief Financial Officer
28
Certification Pursuant To Section 302
of The Sarbanes-Oxley Act of 2002
I, Robert T. Cushing, the principal executive officer and principal financial
officer of TrustCo Bank Corp NY, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TrustCo Bank Corp NY;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrant's internal controls; and
29
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Robert T. Cushing
------------------
Chief Executive Officer and
Chief Financial Officer
30
Exhibits Index
Reg S-K
Exhibit No. Description Page No.
- -------------------------------------------------------------------------------
3(ii)a Amended and Restated Bylaws of TrustCo Bank Corp NY 29
10(a) Consulting Agreement Between TrustCo Bank Corp NY
and Robert A. McCormick 40
99.1 Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 Of The Sarbanes-
Oxley Act of 2002 42
31
Exhibit 3(ii)a
AMENDED AND RESTATED BYLAWS OF
TRUSTCO BANK CORP NY
(a New York State Corporation)
(September 17, 2002)
-----------------------------------------------------
ARTICLE 1
DEFINITIONS
As used in these Bylaws, unless the context otherwise requires, the term:
1.1 "Board" means the Board of Directors of the Corporation.
1.2 "Business Corporation Law" means the Business Corporation Law of the State
of New York, as amended from time to time.
1.3 "Bylaws" means the initial Bylaws of the Corporation, as amended from time
to time.
1.4 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.5. "Corporation" means TrustCo Bank Corp NY.
1.6 "Directors" means directors of the Corporation.
1.7 "Entire Board" means the total number of directors which the Corporation
would have if there were no vacancies.
1.8 "Chief Executive Officer" means the Chief Executive Officer of the
corporation.
1.9 "Chairman" means chairman of the Board of the Corporation.
1.10 "President" means the President of the Corporation.
1.11 "Secretary" means the Secretary of the Corporation.
1.12 "Vice President" means the Vice President of the Corporation.
32
ARTICLE 2
SHAREHOLDERS
2.1 PLACE OF MEETINGS. Every meeting of shareholders shall be held at such place
within or without the State of New York as shall be designated by the Board of
Directors in the notice of such meeting or in the waiver of notice thereof.
2.2 ANNUAL MEETING. A meeting of shareholders shall be held annually for the
election of Directors and the transaction of other business at such hour and on
such business day as may be determined by the Board. Written notice of such
meeting, stating the place, date and hour thereof, shall be given, personally or
by mail, not less than ten nor more than sixty days before the date of such
meeting, to each shareholder certified to vote at such meeting.
2.3 SPECIAL MEETINGS. At every meeting of shareholders, the Chairman, or in his
absence, an officer of the Corporation designated by the Board or the Chairman,
shall act as chairman of the meeting. The Secretary, or in his absence, one of
the Vice Presidents not acting as chairman of the meeting, shall act as
secretary of the meeting. In case none of the officers above designated to act
as chairman or secretary of the meeting, respectively, shall be present, a
chairman or a secretary of the meeting, as the case may be, shall be chosen by a
majority of the votes cast at such meeting by the holders of shares present in
person, or represented by proxy and entitled to vote at the meeting.
2.4 QUORUM AND VOTING REQUIREMENTS; ADJOURNMENT. Except with respect to a
special meeting for the election of Directors as required by law, or as
otherwise provided in these Bylaws, (a) the holders of at least a majority of
the outstanding shares of the Corporation shall be present in person or by proxy
at any meeting of the shareholders in order to constitute a quorum for the
transaction of any business, and (b) the votes of the holders of at least a
majority of the outstanding shares of the Corporation shall be necessary at any
meeting of shareholders for the transaction of any business or specified item of
business, other than the changing, amending or repealing of any provision of the
Certificate of Incorporation or Bylaws which shall require the affirmative vote
of two-thirds of the Corporation's voting stock; provided, however, that when a
specified item of business is required to be voted on by a class or series (if
the Corporation shall then have outstanding shares or more than one class or
series), voting as a class, the holders of a majority of the shares of such
class or series shall constitute a quorum (as to such class or series) for the
transaction of such item of business. The holders of a majority of shares
present in person or represented by proxy at any meeting of shareholders,
including an adjourned meeting, whether or not a quorum is present, may adjourn
such meeting to another time and place.
2.5 INSPECTORS AT MEETINGS. Two or more inspectors shall be appointed by the
Board or the Executive Committee prior to each Annual Meeting of Shareholders,
to serve at the meeting or any adjournment thereof. In case any person appointed
fails to appear or act, the vacancy may be filled by appointment made by the
Board in advance of the meeting or at the meeting by the person presiding
thereat.
33
2.6 ORGANIZATION. At every meeting of shareholders, the Chairman of the Board of
Directors, or in his absence, an officer of the Corporation designated by the
Board or the Chairman of the Board, shall act as Chairman of the meeting. The
Secretary, or in his absence, one of the Vice Presidents not acting as Chairman
of the meeting, shall act as Secretary of the meeting. In case none of the
officers above designated to act as Chairman or Secretary of the meeting,
respectively, shall be present, a Chairman or a Secretary of the meeting, as the
case may be, shall be chosen by a majority of the votes cast at such meeting by
the holders of shares present in person, or represented by proxy and entitled to
vote at the meeting.
2.7 ORDER OF BUSINESS. The order of business at all meetings of shareholders
shall be as determined by the Chairman of the meeting, but the order of business
to be followed at any meeting at which a quorum is present may be changed by a
majority of the votes cast at such meeting by the holders of shares present in
person or represented by proxy and entitled to vote at the meeting.
ARTICLE 3
DIRECTORS
3.1 BOARD OF DIRECTORS. Except as otherwise provided in the Certificate of
Incorporation, the affairs of the Corporation shall be managed and its corporate
powers exercised by its Board. In addition to the powers expressly conferred by
the Bylaws, the Board may exercise all powers and perform all acts which are not
required, by the Bylaws or the Certificate of Incorporation or by law, to be
exercised and performed by the shareholders.
3.2 NUMBER; QUALIFICATION; TERM OF OFFICE. Subject to Section 702(b) of the
Business Corporation Law, the number of Directors constituting the Entire Board
may be changed from time to time by action of the shareholders or the Board,
provided that such number shall not be less than seven or more than twenty. The
Directors shall be divided into three classes as nearly equal in number as may
be, one class to be elected each year for a term of three years and until their
successors are elected and qualified. A Director attaining 75 years of age shall
cease to be a Director and that office shall be vacant.
3.3 ELECTION. Directors shall be elected by the affirmative vote of the holders
of a majority of the Company's outstanding voting stock.
3.4 CHAIRMAN OF THE BOARD OF DIRECTORS. The Board shall designate one of their
number as the Chairman. The Chairman shall, if present, preside at all meetings
of shareholders and of the Board and may perform such other duties as from time
to time may be assigned him by the Board. The Chairman shall be a permanent
member of the Executive Committee as provided in Section 4.1 of these Bylaws and
shall be a member of such other committees as the Board may from time to time
determine.
34
3.5 NEWLY CREATED DIRECTORSHIP AND VACANCIES. Newly created directorships
resulting from an increase in the number of Directors and vacancies occurring in
the Board for any reason, may be filled by vote of a majority of the Directors
then in office, although less than a quorum, at any meeting. Directors elected
by the Board shall hold office until the next meeting of shareholders at which
the election of directors is in the regular order of business, and until their
successors have been elected and qualified.
3.6 RULES AND REGULATIONS. The Board of Directors may adopt such Rules and
Regulations for the conduct of its meetings and the management of the affairs of
the Company as it may deem proper, not inconsistent with the laws of the State
of New York, or these Bylaws.
3.7 REGULAR MEETINGS. Regular meetings of the Board shall be held on the third
Tuesday of February, May, August and November, unless otherwise specified by the
Board, and may be held at such times and places as may be fixed from time to
time by the Board, and may be held without notice.
3.8 SPECIAL MEETINGS. Special meetings of the Board shall be held whenever
called by the Chairman, and a special meeting shall be called by the Chief
Executive Officer or the Secretary at the written request of any seven
Directors. Notice of the time and place of each special meeting of the Board
shall, if mailed, be addressed to each Director at the address designated by him
for that purpose or, if none is designated, at his last known address at least
three days before the date on which the meeting is to be held; or such notice
shall be sent to each Director at such address by telegraph, or similar means of
communication, or be delivered to him personally, not later than the day before
the date on which such meeting is to be held.
3.9 WAIVERS OF NOTICE. Anything in these Bylaws or in any resolution adopted by
the Board to the contrary notwithstanding, notice of any meeting of the Board
need not be given to any Director who submits a signed waiver of such notice,
whether before or after such meeting, or who attends such meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
3.10 ORGANIZATION. At each meeting of the Board, the Chairman of the Board or in
the absence of the Chairman of the Board, a Chairman chosen by the majority of
the Directors present, shall preside. The Secretary, or in the absence of the
Secretary, a Vice President, shall act as Secretary at each meeting of the
Board.
3.11 QUORUM AND VOTING. A majority of the Entire Board shall constitute a quorum
for the transaction of business or of any specified item of business at any
meeting of the Board. The affirmative vote of a majority of the Entire Board
shall be necessary for the transaction of any business or specified item of
business at any meeting of the Board, except that the affirmative vote of
two-thirds of the Entire Board shall be necessary to change, amend or repeal any
provision of the Certificate of Incorporation or Bylaws.
3.12 WRITTEN CONSENT OF DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken by the Board may be taken without a meeting if all members
of the Board consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
Board shall be filed with the minutes of the proceedings of the Board.
35
3.13 PARTICIPATION IN MEETING OF BOARD BY MEANS OF CONFERENCE TELEPHONE OR
SIMILAR COMMUNICATIONS EQUIPMENT. Any one or more members of the Board may
participate in a meeting of the Board by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
3.14 NOMINATIONS. Nominations for Directors, other than those made by or on
behalf of the existing management of the Corporation, shall be made in writing
and shall be delivered or mailed to the Board not less than (14) days nor more
than fifty (50) days prior to any meeting of shareholders called for the
election of Directors, provided, however, that if less than twenty-one (21) days
notice of the meeting is given to shareholders, such nominations shall be mailed
or delivered to the Board not later than the close of business on the seventh
(7th) day following the day on which the notice of meeting was mailed.
ARTICLE 4
COMMITTEES
4.1 EXECUTIVE COMMITTEE. There shall be an Executive Committee consisting of not
more than nine Directors, of which four shall constitute a quorum. All but six
of the members of such Executive Committee shall be appointed by the Board of
Directors, shall be known as permanent members and shall hold office until the
organization of the Board after the annual election next succeeding their
respective appointments. Six places on the Executive Committee shall be filled
by the Directors. The Chairman shall be one of the permanent members of the
Executive Committee. Six places shall be filled by Directors, other than the
permanent members of the Executive Committee, in rotation according to
alphabetical order, each panel of six rotating members serving for one calendar
month. In the event that any member of the Executive Committee is unable to
attend a meeting, the Chairman may invite any other Director to take his place
for such meeting. The Executive Committee shall possess and exercise all of the
delegable powers of the Board, except when the latter is in session. It shall
keep a record of its proceedings, and the same shall be subject to examination
by the Board at any time. All acts done and powers and authority conferred by
the Executive Committee from time to time, within the scope of its authority,
shall be and be deemed to be and may be certified as being the act and under the
authority of the Board. Meetings of the Executive Committee shall be held at
such times and places and upon such, if any, notice as the Executive Committee
shall determine from time to time, provided that a special meeting of the
Executive Committee may be called by the Chairman, in his discretion, and shall
be called by the Chief Executive Officer or Secretary on the written request of
any three members, three days' notice of the time and place of which shall be
given in the same manner as notices of special meetings of the Board of
Directors, except that if such notice is given otherwise than by mail, it shall
be sufficient if given at any time on or before the day preceding the meeting.
4.2 OTHER COMMITTEES. The Board, by resolution adopted by a majority of the
Entire Board, may designate from among its members such other standing or
special committees as may seem necessary or desirable from time to time.
36
ARTICLE 5
OFFICERS
5.1 OFFICERS. The Board shall elect or appoint a Chairman and shall elect or
appoint a President, either of which it shall designate the Chief Executive
Officer. If so elected or appointed by the Board, the Chairman may be the Chief
Executive Officer or President of the Corporation; in the absence of such an
election or appointment, however, the Chairman shall not be authorized to act in
the capacity of an officer of the Corporation except as expressly authorized by
the Board. The Board shall also elect or appoint one or more Vice Presidents and
a Secretary, and such other officers as it may from time to time determine. All
officers shall hold their offices, respectively, at the pleasure of the Board.
The Board may require any and all officers, clerks and employees to give a bond
or other security for the faithful performance of their duties, in such amount
and with such sureties as the Board may determine.
5.2 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation
shall have general supervision over the business of the Corporation, subject,
however, to the control of the Board and of any duly authorized committee of
Directors. In the absence of the Chairman of the Board, the Chief Executive
Officer may preside at meetings of the shareholders and at meetings of the
Board. The Chief Executive Officer shall supervise the carrying out of policies
adopted or approved by the Board. He may, with the Secretary or any other
officer of the Corporation, sign certificates for shares of the Corporation. He
may sign and execute, in the name of the Corporation, deeds, mortgages, bonds,
contracts and other instruments, subject to any restrictions imposed by the
Bylaws, Board or applicable laws, and, in general, he shall perform all duties
incident to the office of the Chief Executive Officer and such other duties as
from time to time may be assigned to him by the Board.
5.3 CHAIRMAN AND PRESIDENT. Either the Chairman or the President shall be
designated the Chief Executive Officer of the Corporation. The President, if not
so designated, shall perform such duties as from time to time may be assigned to
him by the Board or by the Chief Executive Officer. The Chairman, if not
designated the Chief Executive Officer, shall perform such duties as from time
to time may be assigned to him by the Board, but not by the Chief Executive
Officer.
5.4 OTHER OFFICERS. All the other officers of the Corporation shall perform all
duties incident to their respective offices, subject to the supervision and
direction of the Board, the Chief Executive Officer, and the Executive
Committee, and shall perform such other duties as may from time to time be
assigned them by the Board or by the Chief Executive Officer. The President and
any Vice President may also, with the Secretary, sign and execute, in the name
of the Corporation, deeds, mortgages, bonds, contracts and other instruments,
subject to any restrictions imposed by the Bylaws, Board or applicable laws.
37
ARTICLE 6
CONTRACTS, LOANS, ETC
6.1 EXECUTION OF CONTRACTS. The Board may authorize any officer, employee or
agent, in the name and on behalf of the Corporation, to enter into any contract
or execute and satisfy any instrument, and any such authority may be general or
confined to specific instances, or otherwise limited.
6.2 LOANS. The Chief Executive Officer or any other officer, employee or agent
authorized by the Board may effect loans and advances at any time for the
Corporation from any bank, trust company or other institution or from any firm,
corporation or individual, and for such loans and advances may make, execute and
deliver promissory notes, bonds or other certificates or evidences of
indebtedness of the Corporation, and when authorized so to do may pledge and
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans or advances.
6.3 SIGNATURE AUTHORITY. The Chief Executive Officer shall from time to time
authorize the appropriate officers and employees of the Corporation who are to
sign, execute, acknowledge, verify and deliver or accept all agreements,
conveyances, transfers, obligations, authentications, certificates and other
documents and instruments and to affix the seal of the Corporation to any such
document or instrument and to cause the same to be attested by the Secretary or
Assistant Secretary.
ARTICLE 7
SHARES
7.1 STOCK CERTIFICATES. Certificates representing shares of the Corporation, in
such form as shall be determined from time to time by the Board, shall be signed
by the Chief Executive Officer, the President, or any Vice President and the
Secretary, and may be sealed with the seal of the Corporation or a facsimile
thereof.
38
7.2 TRANSFER OF SHARES. Transfers of shares shall be made only on the book of
the Corporation by the holder thereof or by his duly authorized attorney or a
transfer agent of the Corporation, and on surrender of the certificate or
certificates representing such shares properly endorsed for transfer and upon
payment of all necessary transfer taxes. Every certificate exchanged, returned
or surrendered to the Corporation shall be marked "Canceled", with the date of
cancellation, by the Secretary or the transfer agent of the Corporation. A
person in whose name shares shall stand on the books of the Corporation shall be
deemed the owner thereof to receive dividends, to vote as such owner and for all
other purposes as respects the Corporation. No transfer of shares shall be valid
as against the Corporation, its shareholders and creditors for any purpose,
except to render the transferee liable for the debts of the Corporation to the
extent provided by law, until such transfer shall have been entered on the books
of the Corporation by an entry showing from and to whom transferred.
7.3 CLOSING OF TRANSFER BOOKS. The Board may prescribe a period prior to any
shareholders' meeting or prior to the payment of any dividend, not exceeding
sixty days, during which no transfer of stock on the books of the Corporation
may be made and may fix a day as provided by the Business Corporation Law as of
which shareholders entitled to notice and to vote at such meeting shall be
determined.
7.4 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time maintain
one or more transfer offices or agents and registry officer or agents at such
place or places as may be determined from time to time by the Board.
7.5 LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. If the holder of any
shares shall notify the Corporation of any loss, destruction, theft or
mutilation of the certificate or certificates representing such shares, the
Corporation may issue a new certificate or certificates to replace the old, upon
such conditions as may be specified by the Board consistent with applicable
laws.
ARTICLE 8
EMERGENCIES
8.1 OPERATION DURING EMERGENCY. In the event of a state of emergency declared by
the President of the United States or the person performing his functions or by
the Governor of the State of New York or by the person performing his functions,
the officers and employees of the Corporation shall continue to conduct the
affairs of the Corporation under such guidance from the Directors as may be
available except as to matters which by statute require specific approval of the
Board of Directors and subject to conformance with any governmental directives
during the emergency.
8.2 OFFICERS PRO TEMPORE DURING EMERGENCY. The Board of Directors shall have
power, in the absence or disability of any officer, or upon the refusal of any
officer to act, to delegate and prescribe such officer's powers and duties to
any other officer for the time being.
8.3 DISASTER. In the event of a state of emergency resulting from disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by the Directors and officers as contemplated by
these Bylaws, any two or more available members of the Executive Committee shall
constitute a quorum of that committee for the full conduct and management of the
affairs and business of the Corporation, notwithstanding any other provision of
these Bylaws, and such committee shall further be empowered to exercise all
powers reserved to any and all other committees of the Board established
pursuant to Article 4 of these Bylaws. In the event of the unavailability, at
such time, of at least two members of the Executive Committee, any three
available Directors may constitute themselves the Executive Committee pro tem
for the full conduct and management of the affairs and business of the
Corporation in accordance with the provisions of this Article, until such time
as the incumbent Board or a reconstituted Board is capable of assuming full
conduct and management of such affairs and business.
39
ARTICLE 9
SEAL
9.1 SEAL. The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation and the year and State of
its incorporation.
ARTICLE 10
FISCAL YEAR
10.1 FISCAL YEAR. The fiscal year of the Corporation shall be determined, and
may be changed, by resolution of the Board.
ARTICLE 11
VOTING OF SHARES HELD
11.1 VOTING OF SHARES HELD BY THE CORPORATION. Unless otherwise provided by
resolution of the Board and excepting the shares of any subsidiary company of
the Corporation which are to be voted in accordance with the resolution of the
Board, the Chief Executive Officer may from time to time appoint one or more
attorneys or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
a shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation and to consent in writing
to any action by any such other corporation, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed on behalf of the Corporation
and under its corporate seal, or otherwise, such written proxies, consents,
waivers or other instruments as he may deem necessary or proper in the premises;
or the Chief Executive Officer may himself attend any meeting of the holders of
the shares or other securities of any such other corporation and thereat vote or
exercise any or all other powers of the Corporation as the holder of such shares
or other securities of such other corporation.
ARTICLE 12
AMENDMENTS TO BYLAWS
12.1 AMENDMENTS. The Bylaws or any of them may be altered, amended, supplemented
or repealed, or new Bylaws may be adopted by a vote of the holders of at least
two-thirds of the shares entitled to vote at any regular or special meeting of
shareholders, or by a vote of at least two- thirds of the Entire Board of
Directors at any regular or special meeting thereof, provided notice of such
proposed changes has been set forth in the notice of meeting of shareholders or
Directors.
40
ARTICLE 13
INDEMNIFICATION OF DIRECTORS AND OFFICERS
13.1 In addition to authorization provided by law, the Directors are authorized,
by resolution, to provide indemnification or to advance expenses to any Officer
or Director seeking such indemnification or the advancement of such expenses.
They may also, by resolution, authorize agreements providing for
indemnification.
13.2 The indemnification and advancement authorized by this Article shall be
subject to each of the conditions or limitations set forth in the succeeding
subdivisions(s) of this Section.
13.2.1 No indemnification may be made to or on behalf of any Director or
Officer if a judgment or other final adjudication adverse to the Officer or
Director establishes that his acts were committed in bad faith or were the
result of an act of deliberate dishonesty and were material to the cause of
action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not entitled.
13.3 Officers and Directors of any wholly owned subsidiary serve at the request
of the Corporation for the purpose of this Article.
13.4 The Directors may by resolution, authorize the Corporation's Officers and
Directors to serve as a Director or Officer of any other corporation of any type
or kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise for the purpose of the indemnification
provisions of this Article. The failure to enact such a resolution shall not, in
itself, create a presumption that such service was not authorized.
I, Henry C. Collins, Secretary of TrustCo Bank Corp NY, Schenectady, New York,
hereby certify that the foregoing is a complete, true and correct copy of the
Amended and Restated Bylaws of TrustCo Bank Corp NY, and that the same are in
full force and effect at this date.
/s/Henry C. Collins
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Henry C. Collins
Secretary
September 18, 2002
-------------------------------------
Date
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Exhibit 10(a)
CONSULTING AGREEMENT BETWEEN
TRUSTCO BANK CORP NY AND ROBERT A. McCORMICK
THIS CONSULTING AGREEMENT ("Agreement") is made as of the first day of
November 2002, by and between TrustCo Bank Corp NY, a New York corporation
("TrustCo"), and Robert A. McCormick ("McCormick"). In consideration of the
mutual covenants herein contained, the parties agree as follows:
1. Term and Duties
(a) The term of McCormick's engagement under this Agreement will commence on
November 1, 2002 and will continue through May 31, 2006 (the "Term").
(b) During the Term McCormick shall serve as a consultant to the Board of
Directors of TrustCo and to the boards of directors of each of its affiliates,
rendering to such boards and to individual members of such boards consulting
services and advice on an as-needed basis with respect to matters pertaining to
TrustCo and its affiliates. The services rendered shall be advisory only.
McCormick's services as a consultant shall be rendered at such times and places
as may be mutually convenient to the boards and McCormick. McCormick
acknowledges that he will be an independent contractor only, and shall not for
any purpose hereunder be considered to be an employee of TrustCo or any of its
affiliates.
2. Compensation. In full compensation for the services to be rendered by
McCormick hereunder during the Term and for the noncompetition agreement set
forth in Section 3 herein, TrustCo will pay McCormick a fee in the amount of Six
Million Dollars ($6,000,000.00), to be paid on November 1, 2002, in cash and/or
in any other vehicle mutually acceptable to the parties, including but not
limited to, life insurance.
3. Non-Competition. McCormick acknowledges that he has provided special, unique
and extraordinary services to TrustCo and its affiliates during his employment
with TrustCo and its bank subsidiary. McCormick agrees that he will not, during
the Term, directly or indirectly, without the written consent of TrustCo:
(a) Own, have any interest in or act as an officer, director, partner,
principal, employee, agent, representative, consultant to or independent
contractor of a Competitor if McCormick in any such capacity performs services
in an aspect of Competitor's business which is competitive with TrustCo or an
affiliate; provided, however, McCormick may invest in no more than 5% of the
stock of any publicly traded company that is a Competitor without violating this
covenant;
(b) Divert or attempt to divert to a Competitor any client, customer or account
of TrustCo or an affiliate (which is a client, customer or account during the
Term); or
(c) Hire, or solicit to hire, for or on behalf of a Competitor, any employee of
TrustCo or an affiliate (who is an employee of TrustCo or an affiliate as of the
time of such hire or solicitation to hire) or any former employee of TrustCo or
an affiliate (who was employed by TrustCo or an affiliate within the 12-month
period immediately preceding the date of such hire or solicitation to hire).
(d) For purposes of this Paragraph 3, capitalized terms are defined as follows:
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Competitor: "Competitor" shall mean any person, firm, corporation, partnership,
limited liability company or any other entity doing business in the Geographic
Market which, during the Term, is engaged in competition in a substantial manner
with TrustCo or an affiliate.
Geographic Market: "Geographic Market" shall mean the area within a radius of
twenty-five (25) miles of the location of the headquarters or any branch office
of TrustCo or an affiliate.
4. Scope of Noncompetition Provisions. If it shall be finally determined by any
court of competent jurisdiction that any limitation contained in Section 3 is
too extensive to be legally enforceable and must be reduced, then the parties
hereby agree that such reduced limitation shall be deemed to be the maximum
scope or duration which shall be legally enforceable and McCormick hereby
consents to the enforcement of such reduced limitation.
5. Termination of Contract. TrustCo may terminate this Agreement upon sixty (60)
days written notice to McCormick. Upon the effective date of such termination,
the parties' obligations under this Agreement shall cease; provided, however,
that McCormick's obligation under Section 3 shall remain in effect until the
expiration of the Term.
6. Entire Agreement; Amendment; Governing Law. This Agreement constitutes the
entire Agreement between TrustCo and McCormick and all prior understandings and
agreements between them, if any, concerning the same subject matter are merged
herein and thus extinguished. This Agreement may not be modified except by a
writing signed by both parties. This Agreement is made under, and shall be
construed in accordance with, the laws of the State of New York.
7. Separability. If any provision hereof is declared void and unenforceable by
any court of competent jurisdiction, the remaining provisions hereof shall
remain in full force and effect.
IN WITNESS WHEREOF, TrustCo and McCormick have executed this Agreement as of the
day and year first above written.
PERSONNEL ADVISORY COMMITTEE TRUSTCO BANK CORP NY
/s/Joseph A. Lucarelli By: /s/Robert T. Cushing
- ---------------------------- -------------------------
Joseph A. Lucarelli, Chairman Robert T. Cushing
/s/Barton A. Andreoli /s/Robert A. McCormick
- -------------------------------- --------------------------------
Barton A. Andreoli Robert A. McCormick
/s/William D. Powers
- --------------------------------
William D. Powers
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Exhibit 99.1
Certification
Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 Of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of TrustCo Bank Corp NY (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned hereby certifies pursuant to 18 U.S. C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
the undersigned's knowledge and belief:
1. The Report fully complies with the requirements of section 13(a)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents,
in all material respects, the financial condition and
result of operations of the Company.
/s/Robert T. Cushing
---------------------------
Robert T. Cushing
Chief Executive Officer and
Chief Financial Officer
November 14, 2002
44