TRUSTCO
BANK CORP NY
ANNUAL REPORT
2003
(LOGO)
TRUSTCO
Bank Corp NY
TrustCo Bank Corp NY is a one bank financial services company headquartered
in Glenville, New York. The Company is the largest financial services company
headquartered in the Capital Region of New York State. The Company's
principal subsidiary, Trustco Bank, operates 69 community banking offices
offering 50 drive-up windows and 64 Automatic Teller Machines throughout the
Bank's market area. The Company serves three states and 16 counties with a
broad range of community banking services.
Financial Highlights
(dollars in thousands, except per share data)
Years ended December 31,
Percent
2003 2002 Change
Income:
Net interest income (Taxable Equivalent) $ 102,752 103,289 (0.52)%
Net income 53,031 49,244 7.69
Per Share:
Basic earnings .713 .678 5.16
Diluted earnings .704 .660 6.67
Tangible book value 3.06 3.16 (3.16)
Average Balances:
Assets 2,710,175 2,693,505 6.19
Loans, net 1,275,023 1,512,448 (15.70)
Deposits 2,340,827 2,212,440 5.80
Shareholders' equity 225,045 214,963 4.69
Financial Ratios:
Return on average assets 1.96% 1.83 7.10
Return on average equity <F1> 26.21 26.08 0.50
Tier 1 capital to:
Total average assets (leverage) 7.53 7.78 (3.21)
Risk-adjusted assets 16.54 15.48 6.85
Total capital to risk-adjusted assets 17.82 16.77 6.26
Net loans charged off to average loans .39 .40 (2.50)
Allowance for loan losses as a coverage of nonperforming loans 15.0x 10.7 40.19
Efficiency ratio 38.33 36.66 (4.56)
Dividend payout ratio 83.98 88.60 (5.21)
<FN>
<F1> Excludes the market adjustment on securities available for sale.
</FN>
Per share information of common stock
Tangible Range of Stock
Basic Diluted Cash Book Price
Earnings Earnings Dividend Value High Low
2002
First quarter $.172 .166 .150 2.89 13.50 11.50
Second quarter .174 .169 .150 3.00 13.45 10.85
Third quarter .183 .179 .150 3.08 13.35 8.75
Fourth quarter .148 .146 .150 3.16 11.53 9.50
2003
First quarter .178 .175 .150 3.12 11.40 9.50
Second quarter .180 .178 .150 3.16 11.75 9.72
Third quarter .192 .189 .150 3.14 13.47 10.81
Fourth quarter .163 .161 .150 3.06 14.25 12.25
1
MAP OF BRANCH LOCATIONS OMITTED
2
(LOGO)
TRUSTCO
Bank Corp NY
Table of Contents
Financial Highlights 1
President's Message 4
Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Average Balances, Yields
and Net Interest Margins 13
Glossary of Terms 26
Management's Statement of Responsibilities 27
Independent Auditors' Report 28
Consolidated Financial Statements and Notes 29
Officers and Board of Directors 46
Officers of Trustco Bank 46
Branch Locations 47
General Information 48
TrustCo Mission Statement:
TrustCo will be the low cost provider of high quality services to our
customers in the communities we serve and return to our owners an above
average return on their investment.
3
(LOGO)
TRUSTCO
Bank Corp NY
President's Message
Dear Shareholders:
I am pleased to report that our 2003 annual report contains more of what
you, our shareholders, have come to expect from TrustCo. We are continuing on
our steady and deliberate path to increase shareholder value by delivering
superior financial performance and by building a strong community banking
franchise in New York and Florida. For 2003 TrustCo delivered record results
and generated the kind of growth that will help sustain our performance into
the future.
In January 2004 the Board of Directors appointed me the President and
Chief Executive Officer of TrustCo Bank Corp NY and Trustco Bank. Robert T.
Cushing assumed the role of Executive Vice President and Chief Financial
Officer and Scot R. Salvador became Executive Vice President and Chief
Banking Officer. These changes position us for growth into the future,
streamline decision making and allow each of us to focus on specific areas of
the bank. Senior Vice President Nancy A. McNamara will be retiring in May of
2004.
Outstanding customer service and strong deposit growth coupled with our
solid revenue base and consistently strong credit quality drove our financial
results. We are pleased by our New York and Florida branch expansion program
which saw four branches opened in the Orlando, Florida region, two in the
downstate New York region and one in Saratoga Springs, New York during 2003.
We are excited about these opportunities and the challenge of delivering the
TrustCo products and services to these new communities. We are pleased to be
a part of these new communities while we expand the foundation and roots of
our Company in Upstate New York.
Thanks to the hard work of our employees and our unique ability to make
decisions and adjust swiftly and resolutely to changing market conditions,
our Company generated record earnings of $53.0 million. And we enter 2004 in
a much better competitive position than most others in our industry. While
the national economic recovery is beginning to show signs of strengthening
this poses unique opportunities for us to expand our marketing and sales
effort and to capitalize on the decisions we made in 2003 that prepared us
for these more potentially robust conditions going forward.
During 2003, TrustCo declared cash dividends of $0.60 per common share,
which amounts to total dividends of $44.5 million to our shareholders. Over
the last five years TrustCo paid cash dividends to shareholders representing
approximately 84% of total net income earned during that time period. It
continues to be our belief that excess capital should be returned to
shareholders in the form of cash dividends. We also believe that it is
prudent to retain sufficient capital so as to support our growth goals and to
remain well capitalized for regulatory purposes.
4
(LOGO)
TRUSTCO
Bank Corp NY
President's Message (continued)
Financial Highlights
Net income for the year was $53.0 million representing an increase of 7.7%
over the $49.2 million earned in 2002. These results translate into diluted
earnings per share of $0.704 in 2003 and $0.660 in 2002. Our return on
shareholders' equity was 26.21% in 2003 and 26.08% in 2002.
Cost controls are always an element of TrustCo's success and again in 2003
we achieved world class results. Our efficiency ratio of 38.3% in 2003 and
36.7% in 2002 placed us among the most efficient banking organizations in the
nation. These results continue a long tradition at TrustCo of delivering high
quality customer service at low cost.
Our long-term objectives are for controlled growth and steady increases in
earnings. To realize these objectives we will continue to refine our balance
sheet, expand into new market territories and focus on the core principles of
asset quality and cost controls.
I would like to recognize the significant contributions of the people that
make up this wonderful organization from our Board of Directors to all of the
dedicated employees in each department and branch throughout the
organization.
It is with a great deal of pride that I announce another year of record
earnings and look forward to meeting the opportunities and challenges of
2004. Thank you for your support.
Sincerely,
/s/ Robert J. McCormick
Robert J. McCormick
President & Chief Executive Officer
TrustCo Bank Corp NY
5
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The financial review which follows will focus on the factors affecting the
financial condition and results of operations of TrustCo Bank Corp NY (the
"Company", "TrustCo" or the "Bank"), and Trustco Bank during 2003 and, in
summary form, the two preceding years. Net interest income and net interest
margin are presented in this discussion on a taxable equivalent basis.
Balances discussed are daily averages unless otherwise described. The
consolidated financial statements and related notes and the quarterly reports
to shareholders for 2003 should be read in conjunction with this review.
Certain amounts in years prior to 2003 have been reclassified to conform with
the 2003 presentation.
Overview
TrustCo recorded net income of $53.0 million or $0.704 of diluted earnings
per share for the year ended December 31, 2003, compared to $49.2 million or
$0.660 per share for the year ended December 31, 2002. This represents an
increase of 7.7% in net income between 2002 and 2003.
During 2003, the following had a significant effect on net income:
o an increase in the average balance of interest earning assets of
$26.9 million offset by a reduction of six basis points ("bp") in
the net interest margin between 2002 and 2003,
o a reduction in the provision for loan loss from $1.4 million in
2002 to $1.2 million in 2003,
o the recognition of net securities gains of $9.8 million in 2003
compared to $7.5 million recorded in 2002 and,
o a decrease in noninterest expense of $6.8 million to $48.5 million
for 2003 resulting in an efficiency ratio of 38.33%.
Return on Equity
2001 25.31%
2002 26.08%
2003 26.21%
MIX OF AVERAGE EARNING ASSETS
(dollars in thousands) 2003 2002 Components of
vs. vs. Total Earning Assets
2003 2002 2001 2002 2001 2003 2002 2001
Loans, net of unearned income $1,275,023 1,512,448 1,518,768 (237,425) (6,320) 48.9% 58.6 63.9
Securities available for sale:
U.S. Treasuries and agencies 506,608 185,462 167,348 321,146 18,114 19.4 7.2 7.0
States and political subdivisions 203,718 222,696 203,247 (18,978) 19,449 7.8 8.6 8.6
Mortgage-backed securities 60,248 62,494 134,472 (2,246) (71,978) 2.3 2.4 5.7
Other 63,331 97,404 76,602 (34,073) 20,802 2.5 3.8 3.2
Total securities available
for sale 833,905 568,056 581,669 265,849 (13,613) 32.0 22.0 24.5
Federal funds sold 492,262 479,765 271,848 12,497 207,917 18.9 18.6 11.4
Other short-term investments 5,102 19,110 4,074 (14,008) 15,036 0.2 0.8 0.2
Total earning assets $2,606,292 2,579,379 2,376,359 26,913 203,020 100.0% 100.0 100.0
6
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
TrustCo has performed well with respect to a number of key performance
ratios during 2003 and 2002, including:
o return on average equity of 26.21% for 2003 and 26.08% for 2002,
o return on average assets of 1.96% for 2003 and 1.83% for 2002, and
o efficiency ratio of 38.33% for 2003 and 36.66% for 2002.
In response to opportunities for growth, the Board of Directors announced
a management reorganization during the fourth quarter of 2003. Effective
January 1, 2004 Robert J. McCormick became President and Chief Executive
Officer of both TrustCo Bank Corp NY and Trustco Bank. Robert T. Cushing was
named Executive Vice President and Chief Financial Officer of TrustCo Bank
Corp NY and Trustco Bank. Additionally, Scot R. Salvador has become Executive
Vice President and Chief Banking Officer. As previously announced, Senior
Vice President Nancy A. McNamara will retire in May 2004.
TrustCo's operations focus on providing high quality service to the
communities served by the branch-banking network. The financial results for
the Company are influenced by economic events that affect those communities,
as well as national economic trends, primarily interest rates, affecting the
entire banking industry. Changes in net interest income have the greatest
impact on net income.
National economic policies have caused interest rates to drop dramatically
in the Company's marketplace over the past two years. As a result, mortgage
loan interest rates have decreased to historically low levels, providing
TrustCo's existing mortgage loan customers the opportunity to refinance loans
at significantly lower interest rates. TrustCo reinvested funds from loan
refinancings into the securities available for sale portfolio. The
improvement in the bond market provided an opportunity to reinvest these
funds at attractive interest rates. The average balance of the residential
real estate loan portfolio decreased by $257.4 million during the year while
the average balance of securities available for sale increased by $265.8
million. In essence, this was a restructuring of the balance sheet from
"loans" to "securities available for sale".
As a result of its move to a federal savings bank thrift charter in 2002
Trustco Bank was required to divest of existing municipal deposit
relationships. Since the conversion date, TrustCo has experienced an outflow
of $64.0 million in municipal deposits.
LOAN PORTFOLIO
(dollars in thousands) As of December 31,
2003 2002 2001
Amount Percent Amount Percent Amount Percent
Commercial $ 190,501 16.4% $199,795 14.1% $212,246 13.6%
Real estate - construction 7,476 0.6 7,252 0.5 12,214 0.8
Real estate - mortgage 779,227 67.0 1,059,035 74.4 1,189,686 76.4
Home equity lines of credit 171,078 14.7 139,294 9.8 122,332 7.9
Installment loans 14,365 1.3 17,465 1.2 20,979 1.3
Total loans 1,162,647 100.0% 1,422,841 100.0% 1,557,457 100.0%
Less: Unearned income 381 540 771
Allowance for loan losses 48,739 52,558 57,203
Net loans $1,113,527 $1,369,743 $1,499,483
Average Balances
2003 2002 2001 2000 1999
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
Commercial $ 199,729 15.7% $ 198,566 13.1% $ 195,152 12.8% $179,952 12.9% $174,434 13.1%
Real estate - construction 6,684 0.5 9,752 0.7 14,526 1.0 18,338 1.3 17,440 1.3
Real estate - mortgage 899,415 70.5 1,156,779 76.4 1,161,521 76.4 1,040,127 74.5 973,336 73.2
Home equity lines of credit 155,185 12.2 129,847 8.6 125,778 8.3 134,459 9.6 141,488 10.6
Installment loans 14,460 1.1 18,181 1.2 22,687 1.5 23,471 1.7 23,725 1.8
Total loans 1,275,473 100.0% 1,513,125 100.0% 1,519,664 100.0% 1,396,347 100.0% 1,330,423 100.0%
Less: Unearned income 450 677 896 933 965
Allowance for loan losses 51,311 56,525 57,398 56,362 56,449
Net loans $1,223,712 1,455,923 1,461,370 1,339,052 1,273,009
7
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
Taxable Equivalent
Net Interest Income (dollars in millions)
2001 $102.4
2002 $103.3
2003 $102.8
Even with this outflow, the average balance of deposits increased by $128.4
million during the year. Also, during 2003 the average balance of short-term
borrowings decreased by $102.6 million as a result of eliminating the Trustco
Short Term Investment Account and moving those trust department funds to
independent third party funds. The decision by the Trust Department was to
move these overnight deposits to independent third parties so as to create
additional opportunities for its customers. The funds that Trustco Bank
received from the Short Term Investment Account were invested in overnight
deposits. There was very little spread between the earnings on the investment
and the interest expense on the account. Though both of these events caused
an outflow of funds, total average interest bearing liabilities actually
increased during the year by $29.5 million.
TrustCo continues to open new branch locations. During 2003 seven new
branches were added to the franchise - one in Saratoga County, New York, two
in Westchester County, New York and four in Seminole County, Florida. The new
branch locations continue the plan established several years ago to expand
the franchise to areas experiencing economic growth. In 2004, this strategy
will lead to the opening of eight to ten new branches. Management believes
that expanding into central Florida and the lower-Hudson Valley region of New
York State has been a success. The new branches have all of the same products
and features found at the other sixty-two existing locations. Due to a
combination of competitive rates, excellent service and convenient locations,
management belives that each of the new branches has successfully attracted
deposit and loan customers and has been a welcome addition to these
communities.
Asset/Liability Management
In managing its balance sheet, TrustCo utilizes funding and capital
sources within sound credit, investment, interest rate, and liquidity risk
guidelines established by management and approved by the Board of Directors.
Loans and securities (including federal funds sold) are the Company's primary
earning assets. Average interest earning assets were 96.2% and 95.8% of
average total assets for 2003 and 2002, respectively.
TrustCo, through its management of liabilities, attempts to provide stable
and flexible sources of funding within established liquidity and interest
rate risk guidelines. This is accomplished through core deposit banking
products offered within the markets served by the Company. TrustCo does not
actively seek to attract out-of-area deposits or so called hot money; rather
the Company focuses on core relationships with both depositors and borrowers.
TrustCo's objectives in managing its balance sheet are to limit the
sensitivity of net interest income to actual or potential changes in interest
rates and to enhance profitability through strategies that should provide
sufficient reward for understood and controlled risk. The Company is
deliberate in its effort to maintain adequate liquidity under prevailing and
projected economic conditions and to maintain an efficient and appropriate
mix of core deposit relationships.
The Company relies on traditional banking investment instruments and its
large base of core deposits to help in asset/liability management.
Interest Rates
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,
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 year.
One of the most important interest rates used to control the economy is
the "federal funds" rate. This is the rate utilized within the banking system
for overnight borrowings for institutions of the highest credit quality. In
2002 the federal funds rate began the year at 1.75% and ended at 1.25%. The
rate dropped another 25 bp during 2003 to end the year at 1%. The federal
funds rate impacts other economic rates, one of which is the prime rate. The
prime rate began 2002 at 4.75%, decreasing to 4.25% by year-end. It dropped
another 25 bp during 2003 to end the year at 4%.
The principal loan product for TrustCo is residential real estate loans.
Interest rates on new residential real estate loan originations are
influenced principally by the rates established by secondary market
participants such as Freddie Mac and Fannie Mae. Because TrustCo is a
portfolio lender and does not sell any loans into the secondary market, the
Company establishes rates that management determines are
8
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
(dollars in thousands) December 31, 2003
After 1 Year
In 1 Year But Within After
or Less 5 Years 5 Years Total
Commercial $ 80,619 52,364 57,518 190,501
Real estate construction 7,476 -- -- 7,476
Total 88,095 52,364 57,518 197,977
Predetermined rates 19,188 52,064 57,518 128,770
Floating rates 68,907 300 -- 69,207
Total $ 88,095 52,364 57,518 197,977
appropriate in light of the long-term nature of residential real estate loans
while remaining competitive with the secondary market rates. During 2003, the
prevailing interest rates on residential real estate loans provided an
opportunity for customers to refinance their loans at historically low rates.
As a result of refinance activity, the average balance of the residential
real estate loan portfolio decreased $257.4 million in 2003.
Interest rates paid on deposits decreased as a result of the overall
reductions in interest rates in the marketplace. TrustCo offered interest
rates on deposit products that were competitive with other local financial
institutions while at the same time keeping pace with the overall reduction
in rates in the marketplace. As a result of the low interest rate
environment, certain customers responded to these marketplace changes by
opening short-term certificates of deposit or placing their funds in savings
accounts.
Earning Assets
Average earning assets during 2003 were $2.61 billion, which was an
increase of $26.9 million from the prior year. This increase was primarily
the result of growth in the average balance of securities available for sale
of $265.8 million offset by a $237.4 million decrease in the average balance
of loans. As previously noted, these changes resulted from mortgage loan
customers refinancing with other financial institutions and investment of the
loan payoffs into investment securities.
Total average assets were $2.71 billion for 2003 and $2.69 billion for
2002.
The table "Mix of Average Earning Assets" shows how the mix of the earning
assets has changed over the last three years. While the growth in earning
assets is critical to improved profitability, changes in the mix also have a
significant impact on income levels.
Loans
Average loans decreased $237.4 million during 2003. Interest income on the
loan portfolio also decreased to $87.7 million in 2003 from $112.1 million in
2002. The average yield decreased from 7.41% in 2002 to 6.88% in 2003.
TrustCo has distinguished itself in the Upstate New York region as one of
the principal originators of residential real estate loans. Through
aggressive marketing and pricing and a customer-friendly service delivery
network, TrustCo has attempted to limit the amount of mortgage loans
refinanced with other institutions. The uniqueness of the loan products was
highlighted by TrustCo in an effort to differentiate them from those of other
lenders. Specifically, low closing costs, no escrow or payment insurance and
quick loan approvals were identified and aggressively marketed. The fact that
the Company holds mortgages in its loan portfolio rather than selling them
into secondary markets was also highlighted. While management believes this
policy ultimately benefits the borrower, it can result in slightly higher
rates as compared to the local competition. Despite these efforts, certain
existing and potential borrowers chose to refinance/originate their loans
with institutions offering lower rates, resulting in a decline in the balance
of this portfolio. The average balance of residential real estate loans was
$899.4 million in 2003 and $1.16 billion in 2002. Income on residential real
estate loans decreased to $64.9 million in 2003 from $87.7 million in 2002.
The yield on the portfolio decreased to 7.22% for 2003 from 7.55% in 2002 due
to general changes in retail rates in the marketplace. Though there remains a
debate among nationally recognized economists, the Company believes the
general tenor of the economy is for improvement and consequently, increases
in long-term interest rates. As a result, the significant amount of
refinancing that has occurred during 2002 and
9
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
2003 may not continue in 2004. Assuming a slowdown in refinancing, TrustCo
anticipates that the unique features of its mortgage loan products will once
again attract customers.
The overwhelming majority of TrustCo's real estate loans are secured by
properties within the Bank's market area. Management's specific knowledge of
local market conditions and trends is considered a benefit both for marketing
and collection purposes. During 2003, management continued its established
practice of retaining all new loan originations in the Bank's portfolio
rather than selling them in the secondary market. This practice positions
TrustCo to respond quickly to customer and market needs by allowing TrustCo
and the customers to interact on a one-to-one basis. The overall result is
that TrustCo is able to develop long-term business relationships with
customers and meet their needs quickly.
The decrease in yields earned on the commercial and home equity loan
portfolios is apparent in light of decreases in the benchmark interest rate
indexes - primarily the federal funds rate and prime rate. The average yield
earned on these loan portfolios during 2003 was 62 bp and 65 bp less than
what was earned during 2002, respectively.
Average commercial loans of $199.7 million in 2003 increased $1.1 million
from $198.6 million in 2002. The average yield on the commercial loan
portfolio decreased to 7.36% for 2003 compared to 8.10% for 2002. This
resulted in income on commercial loans of $14.7 million in 2003 and $16.1
million in 2002.
TrustCo strives to maintain strong asset quality in all segments of its
loan portfolio, especially commercial loans. Competition for commercial loans
continues to be very intense in Trustco Bank's market region. Trustco Bank
competes with large money center and regional banks as well as with smaller
locally based banks and thrifts. Over the last several years, competition for
commercial loans has intensified as smaller banks and thrifts have tried to
develop commercial loan portfolios.
TrustCo's commercial lending activities are focused on balancing the
Company's commitment to meeting the credit needs of businesses in its market
area with the necessity of managing its credit risk. In accordance with these
goals, the Company has consistently emphasized the origination of loans
within its market area. The portfolio contains no foreign loans, nor does it
contain any significant concentrations of credit to any single borrower or
industry. The commercial loan portfolio reflects the diversity of businesses
found in the Capital Region's economy. Light manufacturing, retail, service,
and real estate related business are a few examples of the types of
businesses located in the Company's market area.
TrustCo has a long-standing leadership position in the home equity credit
line product in its market area. TrustCo was one of the first financial
institutions in the Capital Region to aggressively market and originate this
product, and has developed significant expertise with respect to its risks
and rewards. During 2003, the average balance of home equity credit lines was
$155.2 million, an increase from $129.8 million in 2002. The home equity
credit line product has developed into a significant business line for most
financial services companies. Trustco Bank competes with both regional and
national concerns for these lines of credit and faces stiff competition with
respect to interest rates, closing costs, and customer service for these
loans. TrustCo continuously reviews changes made by competitors with respect
to the home equity credit line product and adjusts its offerings to remain
competitive. The average yield decreased to 4.01% for 2003 from 4.66% in
2002. This resulted in interest income on home equity credit lines of $6.2
million in 2003, compared to $6.1 million in 2002.
The average balance of installment loans, net of unearned income,
decreased to $14.0 million in 2003 from $17.5 million in 2002. The yield on
installment loans decreased 1 basis point to 12.82% in 2003, resulting in
interest income of $1.8 million.
Securities available for sale: The portfolio of securities available for sale
is managed by the Company to take advantage of changes in interest rates.
Securities available for sale are used primarily for liquidity purposes while
simultaneously producing earnings, and are managed under a policy detailing
the types, duration, and interest rates acceptable in the portfolio.
The designation of "available for sale" is made at the time of purchase,
based upon management's intent to hold the securities for an indefinite
period of time. However, these securities are available for sale in response
to changes in market interest rates, related changes in prepayment risk,
needs for liquidity, or changes in the availability of and yield on
alternative investments.
At December 31, 2003, securities available for sale amounted to $1.18
billion, compared to $653.2 million at year end 2002. For 2003, the average
balance of securities available for sale was $833.9 million with an average
yield of 6.01%, compared to an average balance in 2002 of $568.1 million with
an average yield of 7.18%.
The taxable equivalent income earned on the securities portfolio in 2003
was $50.2 million, compared to $40.8 million earned in 2002. Increases in
both the 2003 average balance for the year and the actual balance at year end
of securities available for sale were the result of efforts to invest the
funds from mortgage refinancings and deposit inflows into
10
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
investment securities available for sale. The interest rates on the
securities purchased during the year were attractive as compared to investing
the funds in overnight federal funds and when compared to the Company's
overall cost of funding. Federal funds sold and other short-term investments
yielded an average rate of return of 1.14% for the year. Interest income was
positively affected by choosing to invest the funds in the securities
available for sale portfolio at significantly higher interest rates. The
additional interest earned on these securities helped offset lower income on
the mortgage loan portfolio. All security purchases continue to be made in
accordance with management's long standing investment policies. Management
believes these additional investments offer the best combination of yield and
credit protection.
During 2003, TrustCo recognized approximately $9.8 million of net gains
from securities transactions, compared to approximately $7.5 million in 2002.
In addition, throughout 2003, TrustCo sold securities to provide liquidity
for potential reinvestment at higher interest rates. This created liquidity
and eliminated lower yielding assets from the securities portfolio. At year
end 2003, TrustCo continued to have significant liquidity in the form of
$355.3 million of federal funds sold and other short-term investments.
TrustCo has not invested in any exotic investment products such as
interest rate swaps, forward placement contracts, or other instruments
commonly referred to as derivatives. By actively managing a portfolio of high
quality securities, TrustCo can meet the objectives of asset/liability
management and liquidity, while at the same time producing a constant
earnings stream that meets or exceeds alternative rates offered in the
marketplace.
Securities available for sale are recorded at their fair value, with any
unrealized gains or losses, net of taxes, recognized as a component of
shareholders' equity. Average balances of securities available for sale are
stated at amortized cost. At December 31, 2003 and 2002, the market value of
TrustCo's portfolio of securities available for sale carried net unrealized
gains of approximately $35.0 million and $45.9 million, respectively.
Maturity and call dates of securities: Many of the securities in the
investment portfolio have a call date in addition to the stated maturity
date. Call dates allow the issuer to redeem the bonds prior to maturity at
specified dates and at predetermined prices. Normally, securities are
redeemed at the call date when the issuer can reissue the security at a lower
interest rate. Therefore, for cash flow, liquidity and interest rate
management purposes, it is important to monitor both maturity dates and call
dates. The table below details the portfolio of securities available for sale
by both maturity date and call date as of December 31, 2003. Mortgage-backed
securities are
SECURITIES AVAILABLE FOR SALE
(dollars in thousands) As of December 31,
2003 2002 2001
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
U.S. Treasuries and agencies $863,528 863,659 224,576 230,428 155,902 160,372
States and political subdivisions 182,118 191,727 223,873 235,495 213,341 216,566
Mortgage-backed securities 64,718 66,322 49,537 52,591 93,626 96,621
Other 685 685 26,068 26,138 17,614 17,613
Total debt securities available for sale 1,111,049 1,122,393 524,054 544,652 480,483 491,172
Equity securities 30,880 54,533 83,246 108,511 69,984 95,928
Total securities available for sale $1,141,929 1,176,926 607,300 653,163 550,467 587,100
SECURITIES PORTFOLIO MATURITY AND CALL DATE DISTRIBUTION
Debt securities available for sale:
(dollars in thousands) As of December 31, 2003
Based on Based on
Final Maturity Call Date
Amortized Market Amortized Market
Cost Value Cost Value
Within 1 year $ 956 959 879,284 879,970
1 to 5 years 3,946 3,997 78,708 83,516
5 to 10 years 94,350 93,924 133,408 138,880
After 10 years 1,011,797 1,023,513 19,649 20,027
Total debt securities available for sale $1,111,049 1,122,393 1,111,049 1,122,393
11
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
reported using an estimate of average life; equity securities are excluded.
The table, "Securities Portfolio Maturity Distribution and Yield,"
distributes the securities available for sale portfolio as of December 31,
2003, based on the final maturity of the securities. Mortgage-backed
securities are stated using estimated average life, and equity securities are
excluded. Actual maturities may differ from contractual maturities because of
securities prepayments and the right of certain issuers to call or prepay
their obligations without penalty.
Federal funds sold and other short-term investments: During 2003, the
average balance of federal funds sold and other short-term investments was
$497.4 million, a slight decrease from $498.9 million in 2002. The average
rate earned on these assets was 1.70% in 2002 and 1.14% in 2003. TrustCo
utilizes this category of earning assets as a means of maintaining strong
liquidity as interest rates change.
During 2002 and 2003, the target federal funds rate set by the Federal
Open Market Committee (FOMC) changed significantly as described previously.
The federal funds sold and other short-term investments portfolio is
significantly affected by changes in the target federal funds rate as are all
market instruments.
Funding Sources
TrustCo utilizes various traditional sources of funds to support its asset
portfolio. The table, "Mix of Average Sources of Funding," presents the
various categories of funds used and the corresponding average balances for
each of the last three years.
Deposits: Average total deposits (including time deposits greater than
$100 thousand) were $2.34 billion in 2003, compared to $2.21 billion in 2002,
an increase of $128.4 million. Increases were noted in all categories of
accounts, other than demand deposits. The average balance of interest bearing
checking accounts increased by
SECURITIES PORTFOLIO MATURITY DISTRIBUTION AND YIELD
Debt securities available for sale:
(dollars in thousands) As of December 31, 2003
Maturing:
After 1 After 5
Within But Within But Within After
1 Year 5 Years 10 Years 10 Years Total
U.S. Treasuries and agencies
Amortized cost $ 499 499 74,870 787,660 863,528
Market value 499 502 73,882 788,776 863,659
Weighted average rate 2.00% 1.67 5.23 5.86 5.35
States and political subdivisions
Amortized cost $ 455 2,384 9,515 169,764 182,118
Market value 458 2,404 9,908 178,957 191,727
Weighted average rate 4.35 5.03 5.44 5.36 5.35
Mortgage-backed securities
Amortized cost $ 2 428 9,915 54,373 64,718
Market value 2 456 10,084 55,780 66,322
Weighted average rate 7.95% 7.92 4.56 5.83 5.65
Other
Amortized cost $ -- 635 50 -- 685
Market value -- 635 50 -- 685
Weighted average rate --% 4.56 3.32 -- 4.47
Total debt securities available for sale
Amortized cost $ 956 3,946 94,350 1,011,797 1,111,049
Market value 959 3,997 93,924 1,023,513 1,122,393
Weighted average rate 3.13% 4.84 5.18 5.78 5.72
Weighted average rates have not been adjusted for any tax-equivalent factor.
12
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
AVERAGE BALANCES, YIELDS AND NET INTEREST MARGINS
(dollars in thousands) 2003 2002 2001
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
Loans, net of unearned income $1,275,023 87,669 6.88% 1,512,448 112,085 7.41% 1,518,768 119,507 7.87%
Securities available for sale:
U.S. Treasuries and agencies 506,608 25,989 5.13 185,462 11,669 6.29 167,348 12,083 7.22
States and political subdivisions 203,718 16,131 7.92 222,696 17,917 8.05 203,247 16,305 8.02
Mortgage-backed securities 60,248 3,618 6.01 62,494 4,483 7.17 134,472 10,653 7.92
Other 63,331 4,430 7.00 97,404 6,697 6.88 76,602 5,782 7.55
Total securities available for sale 833,905 50,168 6.015 68,056 40,766 7.18 581,669 44,823 7.71
Federal funds sold 492,262 5,607 1.14 479,765 8,027 1.67 271,848 10,755 3.96
Other short-term investments 5,102 47 0.93 19,110 431 2.26 4,074 94 2.30
Total interest earning assets 2,606,292 143,491 5.50% 2,579,379 161,309 6.25% 2,376,359 175,179 7.37%
Allowance for loan losses (51,311) (56,525) (57,398)
Cash and noninterest earning assets 155,194 170,651 169,208
Total assets $2,710,175 2,693,505 2,488,169
Liabilities and shareholders' equity
Interest bearing deposits:
Interest bearing checking accounts $ 320,179 1,678 0.52% 306,856 3,124 1.02% 283,165 3,004 1.06%
Savings 759,308 8,795 1.16 701,966 12,758 1.82 617,024 15,574 2.52
Time deposits and money markets 1,072,078 29,370 2.74 1,010,529 39,268 3.89 946,332 47,485 5.02
Total interest bearing deposits 2,151,565 39,843 1.85 2,019,351 55,150 2.73 1,846,521 66,063 3.58
Short-term borrowings 107,799 877 0.81 210,363 2,840 1.35 205,821 6,655 3.23
Long-term debt 326 19 5.80 510 30 5.91 758 45 5.90
Total interest bearing liabilities 2,259,690 40,739 1.80% 2,230,224 58,020 2.60% 2,053,100 72,763 3.54%
Demand deposits 189,262 193,089 181,129
Other liabilities 36,178 55,229 51,092
Shareholders' equity 225,045 214,963 202,848
Total liabilities and
shareholders' equity $2,710,175 2,693,505 2,488,169
Net interest income 102,752 103,289 102,416
Net interest spread 3.70% 3.65% 3.83%
Net interest margin (net interest income
to total interest earning assets) 3.94 4.00 4.31
Portions of income earned on certain commercial loans, U.S. Government
obligations, obligations of states and political subdivisions, and equity
securities are exempt from federal and/or state taxation. Appropriate
adjustments have been made to reflect the equivalent amount of taxable income
that would have been necessary to generate an equal amount of after tax
income. Federal and New York State tax rates used to calculate income on a
tax equivalent basis were 35.0% and 7.5%, for 2003, 35.0% and 8.0%, for 2002,
and 35.0% and 8.5% for 2001. The average balances of securities available for
sale were calculated using amortized costs for these securities. Included in
the average balance of shareholders' equity is $22.7 million, $26.1 million,
and $23.0 million in 2003, 2002, and 2001, respectively, net of unrealized
appreciation, net of tax, in the available for sale securities portfolio.
Nonaccrual loans are included in average loans.
13
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
$13.3 million to $320.2 million in 2003. Money market accounts had an average
balance of $117.5 million in 2002 compared to $149.5 million in 2003. Savings
account balances increased from $702.0 million in 2002 to $759.3 million in
2003, an increase of 8.2%. Time deposits increased on average by $29.5
million and demand deposits decreased by $3.8 million during 2003 compared to
2002.
The increase in deposits reflects the impact of new branches opened over
the last several years, and the continuing focus at TrustCo on providing core
banking services better, faster and cheaper than its competitors. Another
contributing factor is the moving of funds by customers away from the stock
and bond markets and back into the banking system. TrustCo, with its
expanding branch network, is well positioned to attract these new deposits.
The overall cost of interest bearing deposits was 1.85% in 2003 compared
to 2.73% in 2002. The increase in the average balance of interest bearing
deposits, offset by an 88 basis point decrease in the average cost, resulted
in a decrease of approximately $15.3 million in interest expense to $39.8
million in 2003.
The Company strives to maintain competitive rates on deposit accounts and
to attract customers through a combination of competitive interest rates,
quality customer service, and convenient banking locations. In this fashion,
TrustCo is able to attract deposit customers looking for a long-term banking
relationship, and to cross sell banking services utilizing the deposit
account relationship as the starting point.
Other funding sources: The Company had $107.8 million of average
short-term borrowings outstanding during 2003 compared to $210.4 million in
2002. The average cost of short-term borrowings was 0.81% in 2003 and 1.35%
in 2002. This resulted in a decrease in interest expense of approximately
$2.0 million.
In years prior to 2003, the majority of average short-term borrowing
consisted of the Trustco Short-Term Investment Account, which was developed
by Trustco Bank to facilitate overnight deposits from the Company's Trust
Department. Daily balances were transferred by the Trust Department into this
account, and were collateralized by securities owned by Trustco Bank. During
2003, the decrease in short-term borrowing is due to the decision to move the
Trust Department balances from the Trustco Short-Term Investment Account to
independent third-party funds.
MIX OF AVERAGE SOURCES OF FUNDING
(dollars in thousands) 2003 2002 Components of
vs. vs. Total Funding
2003 2002 2001 2002 2001 2003 2002 2001
Demand deposits $ 189,262 193,089 181,129 (3,827) 11,960 7.7% 8.0 8.1
Retail deposits:
Savings 759,308 701,966 617,024 57,342 84,942 31.0 29.0 27.6
Time deposits under $100 thousand 767,505 766,133 751,612 1,372 14,521 31.3 31.6 33.6
Interest bearing checking accounts 320,179 306,856 283,165 13,323 23,691 13.1 12.7 12.7
Money market deposits 149,520 117,478 64,350 32,042 53,128 6.1 4.8 2.9
Total retail deposits 1,996,512 1,892,433 1,716,151 104,079 176,282 81.5 78.1 76.8
Total core deposits 2,185,774 2,085,522 1,897,280 100,252 188,242 89.2 86.1 84.9
Time deposits over $100 thousand 155,053 126,918 130,370 28,135 (3,452) 6.4 5.2 5.9
Short-term borrowings 107,799 210,363 205,821 (102,564) 4,542 4.4 8.7 9.2
Long-term debt 326 510 758 (184) (248) -- -- --
Total purchased liabilities 263,178 337,791 336,949 (74,613) 842 10.8 13.9 15.1
Total sources of funding $2,448,952 2,423,313 2,234,229 25,639 189,084 100.0% 100.0 100.0
14
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
AVERAGE DEPOSITS BY TYPE OF DEPOSITOR
(dollars in thousands) Years Ended December 31,
2003 2002 2001 2000 1999
Individuals, partnerships and corporations $2,318,424 2,150,986 1,947,700 1,922,399 1,984,359
U.S. Government 73 35 83 79 92
States and political subdivisions 9,802 48,049 64,811 49,651 45,223
Other (certified and official checks, etc.) 12,528 13,370 15,056 13,674 13,475
Total average deposits by type of depositor $2,340,827 2,212,440 2,027,650 1,985,803 2,043,149
MATURITY OF TIME DEPOSITS
OVER $100 THOUSAND
(dollars in thousands) As of December 31, 2003
Under 3 months $ 22,805
3 to 6 months 13,118
6 to 12 months 19,674
Over 12 months 114,826
Total $170,423
Capital Resources
Consistent with its long-term goal of operating a sound and profitable
financial organization, TrustCo strives to maintain strong capital ratios and
to qualify as a well capitalized bank in accordance with federal regulatory
requirements. Historically, most of the Company's capital requirements have
been provided through retained earnings generated. New issues of equity
securities have not been required to support the Company's growth.
A basic element of TrustCo's operating philosophy is that the Company will
not retain excess capital. All capital generated by the Company that is in
excess of the levels considered by management to be necessary for the safe
and sound operation of the Company has been distributed to the shareholders
in the form of cash dividends. Consequently, the capital ratios that are
maintained are adequate, in
VOLUME AND YIELD ANALYSIS
(dollars in thousands) 2003 vs. 2002 2002 vs. 2001
Increase Due to Due to Increase Due to Due to
(Decrease) Volume Rate (Decrease) Volume Rate
Interest income (TE):
Federal funds sold $ (2,420) 204 (2,624) (2,728) 5,520 (8,248)
Other short-term investments (392) (216) (176) 337 339 (2)
Securities available for sale:
Taxable 11,189 14,298 (3,109) (5,669) (2,548) (3,121)
Tax-exempt (1,787) (1,507) (280) 1,612 1,564 48
Total securities available
for sale 9,402 12,791 (3,389) (4,057) (984) (3,073)
Loans (24,416) (18,178) (6,238) (7,422) (754) (6,668)
Total interest income (17,826) (5,399) (12,427) (13,870) 4,121 (17,991)
Interest expense:
Interest bearing checking accounts (1,446) 131 (1,577) 120 245 (125)
Savings (3,963) 980 (4,943) (2,816) 1,946 (4,762)
Time deposits
and money markets (9,898) 1,722 (11,620) (8,217) 1,689 (9,906)
Short-term borrowings (1,963) (1,087) (876) (3,815) 144 (3,959)
Long-term debt (11) (11) -- (15) (15) --
Total interest expense (17,281) 1,735 (19,016) (14,743) 4,009 (18,752)
Net interest income (TE) $ (545) (7,134) 6,589 873 112 761
Increases and decreases in interest income and interest expense due to both
rate and volume have been allocated to the two categories of variances
(volume and rate) based on the percentage relationship of such variances to
each other.
15
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
the view of management, but not excessive. This philosophy has led to a
dividend payout ratio of 84.0% of net income in 2003, 88.6% for 2002 and
84.6% for 2001. These are significant payouts to the Company's shareholders
and are considered by management to be a prudent use of excess capital. As to
the likelihood of future dividends, it is currently anticipated that the
philosophy stated above will continue. However, at this time, the Board of
Directors has decided they would not increase the common stock cash dividend
from the $0.60 per share in 2003. The Board concluded that increasing capital
of the Company is an important element to support the new assets generated as
a result of branch expansion anticipated in the coming years.
TrustCo's Tier 1 capital was 16.54% of risk-adjusted assets at December
31, 2003, and 15.48% of risk-adjusted assets at December 31, 2002. Tier 1
capital to average assets at December 31, 2002 was 7.78%, as compared to
7.53% at year end 2003.
At December 31, 2003 and 2002, Trustco Bank met regulators' definition of
a well capitalized institution.
Risk Management
The responsibility for balance sheet risk management oversight is the
function of the Asset Allocation Committee. This committee meets monthly and
includes the executive officers of the Company as well as other department
managers as appropriate. The meetings include a review of balance sheet
structure, formulation of strategy in light of anticipated economic
conditions, and comparison to established guidelines to control exposures to
various types of risk.
Credit Risk
Credit risk is managed through a network of loan officer authorities,
review committees, loan policies, and oversight from the senior executives of
the Company. Management follows a policy of continually
Dividends per Share
2001 $.541
2002 $.600
2003 $.600
identifying, analyzing, and evaluating the credit risk inherent in the loan
portfolio. As a result of management's ongoing reviews of the loan portfolio,
loans are placed in nonaccrual status, either due to the delinquent status of
the principal and/or interest payments, or based on a judgment by management
that, although payment of principal and/or interest is current, such action
is prudent. Loans are generally placed in nonaccrual status when principal
and/or interest is three payments past due. Thereafter, no interest is taken
into income unless received in cash or until such time as the borrower
demonstrates a sustained ability to make scheduled payments of interest and
principal.
Management has also developed policies and procedures to monitor the
credit risk in relation to the federal funds sold portfolio. TrustCo monitors
the credit rating and capital levels of the third party banks that they sell
federal funds to. Only banks with the highest rating from the credit rating
agency selected are included in the list for federal funds transactions.
Nonperforming Assets
Nonperforming assets include loans in nonaccrual status, loans that have
been treated as troubled debt restructurings, loans past due three payments
or more and still accruing interest, and foreclosed real estate properties.
Nonperforming assets at year end 2003 totalled $3.3 million, a decrease of
$1.7 million from the balance of $5.0 million at year end 2002. Nonperforming
loans decreased from $4.9 million at year end 2002 to $3.3 million at year
end 2003. Nonperforming loans as a percentage of the total loan portfolio
were 0.28% in 2003 and 0.35% in 2002.
Included in nonperforming loans at year end 2003 were no loans in
nonaccrual status as compared to $615 thousand at year end 2002. There were
no loans past due three payments or more and still accruing interest at year
end 2003 and 2002. Restructured loans at year end 2002 were $4.3 million,
compared to $3.3 million at year end 2003. Adherence to sound underwriting
standards, vigorous loan collection efforts and timely charge-offs have been
cornerstones of the operating philosophy of TrustCo.
All of the $3.3 million of nonperforming loans at December 31, 2003 are
residential real estate or retail consumer loans. A significant portion of
the charge-offs for 2002 and 2003 occurred in the residential real estate and
retail consumer loan portfolios. During 2003, gross charge-offs of these
types of loans were $9.2 million (which represented 95% of total gross
charge-offs). In 2002, charge-offs for these types of loans were $7.4
million. In the past several years there has been a shift of charge-offs to
16
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
the residential real estate and retail consumer loan portfolios for several
reasons, including:
o the overall emphasis within TrustCo on residential real estate
originations,
o the relatively weak economic environment in the Upstate New York
market, and
o the relative stagnation in realizable real estate values that has
occurred in much of TrustCo's market area.
Consumer defaults and bankruptcies have continued to increase dramatically
over the last several years, and this has led to an increase in defaults on
loans.
TrustCo strives to identify borrowers that are experiencing financial
difficulties, and to work aggressively to minimize losses.
TrustCo has a diversified loan portfolio that includes a significant
balance of residential mortgage loans to borrowers in the Capital Region and
avoids concentrations to any one borrower or any single industry.
Management is aware of no other loans in the Bank's portfolio that pose
significant risk of the eventual non-collection of principal and interest. As
of December 31, 2003, there were no other loans classified for regulatory
purposes that management reasonably expects will materially impact future
operating results, liquidity, or capital resources.
TrustCo has no advances to borrowers or projects located outside the
United States.
Allowance for Loan Losses
The allowance for loan losses is available to absorb losses on loans that
management determines are uncollectible. The allowance is evaluated
continuously, with emphasis on nonperforming and other loans that management
believes warrant special attention. The balance of the allowance is
maintained at a level that is, in management's judgment, representative of
the loan portfolio's inherent risk.
In determining the allowance for loan losses, management reviews past due
information, historical charge-off data, and nonperforming loan activity.
Also, there are a number of other factors that are taken into consideration,
including:
o the magnitude and nature of recent loan charge offs and the
shifting of charge-offs to the residential real estate loan
portfolio,
o the growth in the loan portfolio and the risks associated with the
absolute balance of the loan portfolio in relation to the economic
climate in the Bank's business territory,
o significant growth in the level of losses associated with
bankruptcies and the time period needed to foreclose, secure, and
dispose of collateral, and
o the relatively weak economic environment in the Upstate New York
territory combined with declining real estate prices.
Consumer bankruptcies, and defaults in general, rose significantly during
the past 15 years. This trend appears to be continuing as a result of
economic turmoil and consumers' easy access to large amounts of credit. Job
growth in the Upstate New York area has been modest to declining and there
continues to be a shifting of higher paying jobs in manufacturing and
government to lower paying service jobs. These trends continued in 2003 and
are expected to continue in 2004.
The table, "Summary of Loan Loss Experience", includes an analysis of the
changes to the allowance for the past five years. Loans charged off in 2003
and 2002 were $9.6 million and $8.4 million, respectively. Recoveries were
$4.6 million in 2003 and $2.3 million in 2002. The provision recorded in 2003
was $1.2 million compared to $1.4 million in 2002.
Net charge-offs as a percentage of average loans were 0.39% and 0.40% in
2003 and 2002, respectively.
NONPERFORMING ASSETS
(dollars in thousands) As of December 31,
2003 2002 2001 2000 1999
Loans in nonaccrual status $ -- 615 1,090 4,395 4,433
Loans past due 3 payments or more -- -- 801 896 509
Restructured loans 3,260 4,303 5,159 6,370 4,979
Total nonperforming loans 3,260 4,918 7,050 11,661 9,921
Foreclosed real estate -- 86 603 1,911 1,771
Total nonperforming assets $ 3,260 5,004 7,653 13,572 11,692
Allowance for loan losses $ 48,739 52,558 57,203 56,298 55,820
Allowance coverage of nonperforming loans 14.95x 10.69 8.11 4.83 5.63
Nonperforming loans as a % of total loans 0.28% 0.35 0.45 0.79 0.73
Nonperforming assets as a % of total assets 0.12 0.19 0.30 0.55 0.49
17
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
The allowance for loan losses as a percentage of loans outstanding was 4.17%
at year end 2003 and 3.70% in 2002. The Company has a policy of recognizing
problem loan charge-offs early and pursuing collection efforts aggressively.
Management believes that this policy of early intervention has been a
cornerstone of the strong lending performance that TrustCo has achieved.
TrustCo has identified nonaccrual commercial and commercial real estate
loans, as well as all loans restructured since 1995 under a troubled debt
restructuring, as impaired loans.
Allowance for
Loan Losses (dollars in millions)
2001 $57.2
2002 $52.6
2003 $48.7
At year end 2003 and 2002, there were $3.1 and $4.1 million, respectively,
of impaired loans. The average balances of impaired loans were $3.7 million
during 2003 and $4.9 million during 2002.The Company recognized approximately
$380 thousand of interest income on these loans in 2003 and $540 thousand in
2002.
Allowance to
Loans Outstanding
2001 3.67%
2002 3.70%
2003 4.17%
Market Risk
The Company's principal exposure to market risk is with respect to
interest rate risk. Interest rate risk is the potential for economic loss due
to future interest rate changes. These economic losses can be reflected as a
loss of future net interest income and/or a loss of current market value.
Quantitative and Qualitative Disclosure about Market Risk
TrustCo realizes income principally from the difference or spread between
the interest earned on loans, investments and other interest-earning assets
and the interest paid on deposits and borrowings. Loan volume and yield, as
well as the volume of and rates on investments, deposits and borrowings are
affected by market interest rates. Additionally, because of the terms and
conditions of many of the loan documents and deposit accounts, a change in
interest rates could also affect the projected maturities of the loan
portfolio and/or the deposit base. Accordingly, TrustCo considers interest
rate risk to be a significant market risk for the Company.
Interest rate risk management focuses on maintaining consistent growth in
net interest income and the fair value of capital in varying interest rate
cycles within Board-approved policy limits. Interest rate risk management
also must take into consideration, among other factors, the Company's overall
credit, operating income, operating cost, and capital profile. The Asset
Allocation Committee, which includes all members of senior management and
reports quarterly to the Board of Directors, monitors and manages interest
rate risk to maintain an acceptable level of potential change in the fair
value of capital as a result of changes in market interest rates.
The Company uses an internal simulation model as the primary tool to
identify, quantify and project changes in interest rates and the impact on
the balance sheet. The model utilizes assumptions with respect to cash flows
and prepayment speeds taken both from industry sources and internally
generated based upon historical trends in the Bank's balance sheet.
Assumptions based on the historical behavior of deposit rates and balances in
relation to changes in market interest rates are also incorporated into the
model. This model assumes a fair value amount with respect to non-time
deposit categories since these deposits are part of the core deposit products
of the Company. These assumptions are inherently uncertain and, as a result,
the model cannot precisely measure the fair value of capital or precisely
predict the impact of fluctuations in interest rates on the fair value of
capital.
Using this internal simulation model, the fair values of capital
projections as of December 31, 2003 are referenced on the following page. The
base case scenario shows the present estimate of the fair value of capital
assuming no change in the operating
18
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
SUMMARY OF LOAN LOSS EXPERIENCE
(dollars in thousands) 2003 2002 2001 2000 1999
Amount of loans outstanding at end of year
(less unearned income) $ 1,162,266 1,422,301 1,556,686 1,475,048 1,349,809
Average loans outstanding during year
(less average unearned income) 1,275,023 1,512,448 1,518,768 1,395,414 1,329,458
Balance of allowance at beginning of year 52,558 57,203 56,298 55,820 54,375
Loans charged off:
Commercial 432 997 1,084 1,951 619
Real estate 8,651 6,648 5,383 2,992 6,534
Installment 515 705 561 557 635
Total 9,598 8,350 7,028 5,500 7,788
Recoveries of loans previously charged off:
Commercial 1,393 803 1,664 847 2,811
Real estate 3,003 1,285 1,106 612 1,140
Installment 183 197 223 171 219
Total 4,579 2,285 2,993 1,630 4,170
Net loans charged off 5,019 6,065 4,035 3,870 3,618
Provision for loan losses 1,200 1,420 4,940 4,114 5,063
Allowance of acquired bank -- -- -- 234 --
Balance of allowance at end of year $ 48,739 52,558 57,203 56,298 55,820
Net charge offs as a percent of average
loans outstanding during year
(less average unearned income) .39% .40 .27 .28 .27
Allowance as a percent of loans outstanding
at end of year 4.17 3.70 3.67 3.82 4.14
environment or operating strategies and no change in interest rates from
those existing in the marketplace as of December 31, 2003. The table
indicates the impact on the fair value of capital assuming interest rates
were to instantaneously increase by 100 bp and 200 bp or to decrease by 100
bp. The decrease in interest rates was limited to a 100 bp decline in rates
due to the relatively low interest rate environment at year end 2003.
Estimated Percentage of
Fair value of Capital to
As of December 31, 2003 Fair value of Assets
+200 BP 10.12%
+100 BP 11.80
Current rates 12.96
- -100 BP 13.61
At December 31, 2003 the book value of capital (excluding the market
adjustment on securities available for sale) to assets was 7.45%.
A secondary method to identify and manage the interest rate risk profile
is the static gap analysis. Interest sensitivity gap analysis measures the
difference between the assets and liabilities repricing or maturing within
specific time periods. An asset-sensitive position indicates that there are
more rate-sensitive assets than rate-sensitive liabilities repricing or
maturing within specific time periods, which would generally imply a
favorable impact on net interest income in periods of rising interest rates
and a negative impact in periods of falling rates. A liability-sensitive
position would generally imply a negative impact on net interest income in
periods of rising rates and a positive impact in periods of falling rates.
Static gap analysis has limitations because it cannot measure precisely
the effect of interest rate movements, and competitive pressures on the
repricing and maturity characteristics of interest-earning assets and
interest-bearing liabilities. In addition, a significant portion of the
interest sensitive assets are fixed rate securities with relatively long
lives whereas the interest-bearing liabilities are not subject to these same
limitations. As a result, certain assets and liabilities may in fact reprice
at different times and at different volumes than the static gap analysis
would indicate.
The Company recognizes the relatively long-term nature of the fixed rate
residential loan portfolio. To fund those long-term assets the Company
cultivates long-term deposit relationships (often called core deposits).
These core deposit relationships tend to be longer term in nature and not as
susceptible to changes in interest rates. Core deposit balances allow the
Company to take on certain interest rate risk with respect to the asset side
of the balance sheet.
19
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
INTEREST RATE SENSITIVITY
(dollars in thousands)
At December 31, 2003
Repricing, or able to be repriced, in:
0-90 91-365 1-5 Over 5 Rate
days days years years Insensitive Total
Total assets $678,744 132,670 386,789 1,481,923 97,993 2,778,119
Cumulative total assets $678,744 811,414 1,198,203 2,680,126 2,778,119
Total liabilities
and shareholders' equity $ 90,608 221,485 430,263 1,345,604 690,159 2,778,119
Cumulative total liabilities
and shareholders' equity $ 90,608 312,093 742,356 2,087,960 2,778,119
Cumulative interest
sensitivity gap $588,136 499,321 455,847 592,166
Cumulative gap as a % of interest
earning assets for the period 86.65% 61.54 38.04 22.09
Cumulative interest sensitive
assets to liabilities 749.10 259.99 161.41 128.36
The table above presents an analysis of the interest-sensitivity gap
position at December 31, 2003. All interest-earning assets and
interest-bearing liabilities are shown based upon their contractual maturity
or repricing date adjusted for forecasted prepayment rates. Asset prepayment
and liability repricing periods are selected after considering the current
rate environment, industry prepayment and rates specific to the Company.
There are several significant shortcomings inherent in the gap analysis.
For example, although certain assets and liabilities have similar periods to
maturity or to repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while other interest rates may lag behind changes in market interest rates.
Management takes these factors, and others, into consideration when reviewing
the Bank's gap position and establishing its asset/liability strategy.
Liquidity Risk
TrustCo seeks to obtain favorable funding sources and to maintain prudent
levels of liquid assets in order to satisfy various liquidity demands. In
addition to serving as a funding source for maturing obligations, liquidity
provides flexibility in responding to customer initiated needs. Many factors
affect the ability to meet liquidity needs, including changes in the markets
served by the Bank's network of branches, the mix of assets and liabilities,
and general economic conditions.
The Company actively manages its liquidity position through target ratios
established under its Asset/ Liability Management policies. Continual
monitoring of these ratios, both historically and through forecasts under
multiple interest rate scenarios, allows TrustCo to employ strategies
necessary to maintain adequate liquidity levels. Management has also
developed various liquidity alternatives should abnormal situations develop.
The Company achieves its liability-based liquidity objectives in a variety
of ways. Liabilities can be classified into three categories for the purposes
of managing liability-based liquidity: core deposits, purchased money, and
capital market funds. TrustCo seeks deposits that are dependable and
predictable and that are based as much on the level and quality of service as
they are on interest rate. For 2003, average core deposits (total deposits
less time deposits greater than $100 thousand) amounted to $2.19 billion,
compared to $2.09 billion in 2002. Average balances of core deposits are
detailed in the table "Mix of Average Sources of Funding."
In addition to core deposits, another source of liability-based funding
available to TrustCo is purchased money, which consists of long-term and
short-term borrowings, federal funds purchased, securities sold under
repurchase agreements, and time deposits greater than $100 thousand. The
average balances of these purchased liabilities are detailed in the table
"Mix of Average Sources of Funding." During 2003, the average balance of
purchased liabilities was $263.2 million, compared with $337.8 million in
2002 and $336.9 million in 2001.
TrustCo also has a line of credit available with the Federal Home Loan
Bank of New York.
Off-Balance Sheet Risk
Commitments to extend credit: The Bank makes contractual commitments to
extend credit, and extends lines of credit which are subject to the Bank's
credit approval and monitoring procedures. At December 31, 2003 and 2002,
commitments to
20
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
extend credit in the form of loans, including unused lines of credit,
amounted to $273.9 million and $253.0 million, respectively. In management's
opinion, there are no material commitments to extend credit that represent
unusual risk.
The Company has issued conditional commitments in the form of standby
letters of credit to guarantee payment on behalf of a customer and guarantee
the performance of a customer to a third party. Standby letters of credit
generally arise in connection with lending relationships. The credit risk
involved in issuing these instruments is essentially the same as that
involved in extending loans to customers. Contingent obligations under
standby letters of credit totaled approximately $3.9 million and $1.7 million
at December 31, 2003 and 2002, respectively, and represent the maximum
potential future payments the Company could be required to make. Typically,
these instruments have terms of 12 months or less and expire unused;
therefore, the total amounts do not necessarily represent future cash
requirements. Each customer is evaluated individually for creditworthiness
under the same underwriting standards used for commitments to extend credit
and on- balance sheet instruments. Company policies governing loan collateral
apply to standby letters of credit at the time of credit extension.
Loan-to-value ratios are generally consistent with loan-to-value requirements
for other commercial loans secured by similar types of collateral. The fair
value of the Company's standby letters of credit at December 31, 2003 and
2002 was insignificant.
Other off-balance sheet risk: TrustCo does not engage in activities involving
interest rate swaps, forward placement contracts, or any other instruments
commonly referred to as derivatives. Management believes these instruments
pose a high degree of risk, and that investing in them is unnecessary.
TrustCo has no off-balance sheet partnerships, joint ventures, or other
risk sharing entities.
Noninterest Income and Expense
Noninterest income: Noninterest income is a significant source of revenue for
the Company and an important factor in overall results. Total noninterest
income was $29.6 million in 2003, $27.3 million in 2002 and $25.8 million in
2001. Included in the 2003 results are $9.8 million of net securities gains
compared with net gains of approximately $7.5 million in 2002 and $4.5
million in 2001. Excluding securities transactions, noninterest income was
$19.8 million, in 2003 and 2002, and $21.3 million in 2001.
The Trust Department contributes a large recurring portion of noninterest
income through fees generated by providing fiduciary and investment
management services. Income from these fiduciary activities totalled $6.0
million in 2003, $6.8 million in 2002, and $7.8 million in 2001. Trust fees
are generally calculated as a percentage of the assets under management by
the Trust Department. Assets under management by the Trust Department are not
included on the Company's consolidated financial statements because the Trust
Department holds these assets in a fiduciary capacity. Average assets under
management by the Trust Department of $845.8 million in 2003 decreased $220.8
million from $1.1 billion in 2002. At December 31, 2003 and 2002 assets under
management by the Trust Department were approximately $970 million and $897
million, respectively.
Changes in fees for services to customers reflect changes in the fee scale
used for pricing the services and the volume of services customers utilized.
Noninterest expense: Noninterest expense was $48.5 million in 2003, compared
with $55.3 million in 2002 and $51.3 million in 2001. TrustCo's operating
philosophy stresses the importance of monitoring and controlling the level of
noninterest expense. The efficiency ratio is a strong indicator of how well
controlled and monitored these expenses are for a banking enterprise. A low
ratio indicates highly efficient performance. TrustCo's efficiency ratio was
38.3% in 2003, 36.7% in 2002 and 39.0% in 2001. The general industry goal is
to be below 60% efficiency ratio. TrustCo has consistently outperformed this
industry goal by a wide margin since 1994.
Salaries and employee benefits are the most significant component of
noninterest expense. For 2003, these expenses amounted to $20.4 million,
compared with $22.3 million in 2002, and $25.9 million in 2001. The reduction
in salaries and employee benefit expense is the result of reductions
NONINTEREST INCOME
(dollars in thousands) 2003 vs. 2002
2003 2002 2001 Amount Percent
Trust department income $ 6,046 6,769 7,758 (723) (10.7)%
Fees for services to customers 10,896 10,305 10,363 591 5.7
Net gain on securities transactions 9,807 7,499 4,517 2,308 30.8
Other 2,900 2,725 3,164 175 6.4
Total noninterest income $29,649 27,298 25,802 2,351 8.6%
21
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
NONINTEREST EXPENSE
(dollars in thousands) 2003 vs. 2002
2003 2002 2001 Amount Percent
Salaries and employee benefits $20,449 22,338 25,879 (1,889) (8.5)%
Net occupancy expense 6,265 5,594 5,523 671 12.0
Equipment expense 3,078 2,946 4,942 132 4.5
Professional services 3,040 8,987 2,717 (5,947) (66.2)
Outsourced services 5,601 2,055 350 3,546 172.6
Charitable contributions 513 1,588 442 (1,075) (67.7)
Other real estate income, net (457) (348) (748) (109) 31.3
Other 9,997 12,166 12,208 (2,169) (17.8)
Total noninterest expense $48,486 55,326 51,313 (6,840) (12.4)%
in salary and bonus payments made to senior executives and the payment of
a supplemental retirement expense for the former chief executive officer.
Professional services expense decreased approximately $5.9 million as a
result of expensing a $6.0 million consulting contract with the Company's
former chief executive officer in 2002.
TrustCo has entered into a multi-year contract with Fiserv Solutions, Inc.
to perform certain operating procedures for the Bank. Services included with
the contract are data and item processing for the Bank and trust operations.
The annual cost of the contract is approximately $5 million. The cost of this
contract is included in "outsourced services" above and has been offset by
the elimination of certain other costs. The conversion to the Fiserv system
was completed in the fourth quarter 2002.
Charitable contributions expense decreased approximately $1.1 million as a
result of an additional contribution made in 2002 in recognition of the 100
year anniversary of the Company.
Changes in other components of noninterest expense are the results of
normal banking activities and the increased activities associated with new
branching facilities.
Efficiency Ratio
2001 39.0%
2002 36.7%
2003 38.3%
Income Tax
In 2003, TrustCo recognized income tax expense of $23.3 million, as
compared to $17.0 million in 2002 and $19.9 million in 2001. The tax expense
on the Company's income was different than tax expense at the statutory rate
of 35%, due primarily to tax exempt income and the effect of New York State
income taxes.
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not.
Based primarily on the sufficiency of historical and future taxable
income, management believes it is more likely than not that the net deferred
tax assets of $36.2 million and $33.5 million at December 31, 2003 and 2002,
respectively, will be realized.
Contractual Obligations
The Company is contractually obligated to make the following payments on
long-term debt and leases as of December 31, 2003:
(dollars in thousands) Payments Due by Period:
Less Than 1-3 3-5 More Than
1 Year Years Years 5 Years Total
Federal Home
Loan Bank
borrowings $ 125 55 59 -- 239
Operating leases 1,913 3,393 2,782 13,626 21,714
Total $2,038 3,448 2,841 13,626 21,953
In addition, the Company is contractually obligated to pay Fiserv
Solutions, Inc. approximately $5 million per year through 2006.
Impact of Inflation and Changing Prices
The consolidated financial statements for years ended 2003, 2002 and 2001
have been prepared in accordance with accounting principles generally
accepted in the United States of America which require the measurement of
financial position and operating results in terms of historical dollars
without considering the changes in the relative purchasing
22
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
power of money over time due to inflation. The impact of inflation is
reflected in the increasing cost of operations.
Unlike most industrial companies, nearly all the assets and liabilities
of the Company are monetary.
As a result, changes in interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation,
because interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
Impact of New Accounting Standards
In January 2003, the Financial Accounting Standards Board (FASB) issued
FIN No. 46, "Consolidation of Variable Interest Entities" (FIN 46). The
objective of this interpretation is to provide guidance on how to identify a
variable interest entity (VIE) and determine when the assets, liabilities,
noncontrolling interests, and results of operations of a VIE need to be
included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity if
the company's interest in the VIE is such that the company will absorb a
majority of the VIE's expected losses and/or receive a majority of the
entity's expected residual returns, if they occur. FIN 46 also requires
additional disclosures by primary beneficiaries and other significant
variable interest holders. FIN 46 was effective for all VIEs created after
January 31, 2003. For VIEs created prior to February 1, 2003, FIN 46 was to
be effective for public companies on July 1, 2003. However, the FASB
postponed that effective date to December 31, 2003. In December 2003, the
FASB issued a revised FIN 46 (FIN 46R) which further delayed the effective
date for public companies to March 31, 2004 for VIEs created prior to
February 1, 2003, except for interests in special purpose entities for which
a company must adopt either FIN 46 or FIN 46R as of December 31, 2003. The
Company does not hold any interests in special purpose entities. Adoption of
the requirements of FIN 46R is not expected to have a material impact on the
Company's consolidated financial position, results of operations or
liquidity.
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". This statement amends and clarifies financial accounting
and reporting for derivative instruments and hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" This
statement is effective for contracts entered into or modified after June 30,
2003 and hedging relationships designated after June 30, 2003. The adoption
of this statement did not have any impact on the Company's consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity".
This statement establishes standards for how an issuer clarifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of
the first interim period after June 15, 2003, except for certain mandatorily
redeemable financial instruments for which the effective date has been
deferred indefinitely. The Company currently does not have any financial
instruments that are within the scope of this statement. The adoption of this
statement did not have any impact on the Company's consolidated financial
statements.
In December 2003, the FASB issued a revision to SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits - an Amendment
of FASB Statements No. 87, 88, and 106". This statement prescribes employers'
disclosures about pension plans and other postretirement benefit plans; it
does not change the measurement or recognition of those plans. The statement
retains and revises the disclosure requirements contained in the original
Statement 132. It also requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other postretirement benefit plans. This statement
generally is effective for fiscal years ending after December 15, 2003. The
interim-period disclosures required by this statement are effective for
interim periods beginning after December 15, 2003. The Company's disclosures
in Note 9 to the consolidated financial statements incorporate the
requirements of the revised Statement 132.
In January 2004, the FASB issued FASB Staff Position (FSP) 106-1,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003". This FSP permits a sponsor
of a postretirement health care plan that provides a prescription drug
benefit to make a one-time election to defer accounting for the effects of
the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act). The Act introduces a prescription drug benefit under Medicare as
well as a federal subsidy to sponsors of retiree health care benefit plans
that provide a benefit that is at least actuarially equivalent to the
Medicare benefit. The Company has elected to defer recognition of the effects
of the Act. Specific authoritative guidance on the accounting for the federal
subsidy is pending. The Company does not believe this Act will have a
material impact on the Company's consolidated financial statements.
23
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
(dollars in thousands, except per share data)
2003 2002
Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
Income statement:
Interest income $35,401 34,745 32,041 34,943 137,130 39,063 38,952 38,507 37,213 153,735
Interest expense 11,706 10,346 9,307 9,380 40,739 15,152 15,107 14,533 13,228 58,020
Net interest income 23,695 24,399 22,734 25,563 96,391 23,911 23,845 23,974 23,985 95,715
Provision for loan losses 300 300 300 300 1,200 520 300 300 300 1,420
Net interest income
after provision for
loan losses 23,395 24,099 22,434 25,263 95,191 23,391 23,545 23,674 23,685 94,295
Noninterest income 7,850 7,508 10,201 4,090 29,649 6,753 7,735 6,864 5,946 27,298
Noninterest expense 12,669 12,579 11,600 11,638 48,486 12,393 13,717 11,422 17,794 55,326
Income before
income taxes 18,576 19,028 21,035 17,715 76,354 17,751 17,563 19,116 11,837 66,267
Income tax expense 5,384 5,617 6,750 5,572 23,323 5,383 4,992 5,825 823 17,023
Net income $13,192 13,411 14,285 12,143 53,031 12,368 12,571 13,291 11,014 49,244
Per share data:
Basic earnings $ .178 .180 .192 .163 .713 .172 .174 .183 .148 .678
Diluted earnings .175 .178 .189 .161 .704 .166 .169 .179 .146 .660
Cash dividends declared .150 .150 .150 .150 .600 .150 .150 .150 .150 .600
Critical Accounting Policies
Pursuant to SEC guidance, management of the Company is encouraged to
evaluate and disclose those accounting policies that are judged to be
critical policies - those most important to the portrayal of the Company's
financial condition and results, and that require management's most difficult
subjective or complex judgments. Management considers the accounting policy
relating to the allowance for loan losses to be a critical accounting policy
given the inherent uncertainty in evaluating the levels of the allowance
required to cover credit losses in the portfolio and the material effect that
such judgments can have on the results of operations. Included in the notes
to the Consolidated Financial Statements is a description in Note 1 of the
significant accounting policies that are utilized by the Company in the
preparation of the Consolidated Financial Statements.
Forward-Looking Statements
Statements included in this review and in future filings by TrustCo with
the Securities and Exchange Commission, in TrustCo's press releases, and in
oral statements made with the approval of an authorized executive officer,
which are not historical or current facts, are "forward-looking statements"
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. TrustCo
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The
following important factors, among others, in some cases have affected and in
the future could affect TrustCo's actual results, and could cause TrustCo's
actual financial performance to differ materially from that expressed in any
forward-looking statement: (1) credit risk, (2) interest rate risk, (3)
competition, (4) changes in the regulatory environment, and (5) changes in
general business and economic trends. The fore going 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.
24
(LOGO)
TRUSTCO
Bank Corp NY
Management's Discussion and Analysis (continued)
FIVE YEAR SUMMARY OF FINANCIAL DATA
(dollars in thousands, except per share data) Years Ended December 31,
2003 2002 2001 2000 1999
Statement of income data:
Interest income $ 137,130 153,735 168,660 173,702 167,205
Interest expense 40,739 58,020 72,763 75,648 74,013
Net interest income 96,391 95,715 95,897 98,054 93,192
Provision for loan losses 1,200 1,420 4,940 4,114 5,063
Net interest income after provision
for loan losses 95,191 94,295 90,957 93,940 88,129
Noninterest income 29,649 27,298 25,802 16,366 15,416
Noninterest expense 48,486 55,326 51,313 47,767 45,636
Income before income taxes 76,354 66,267 65,446 62,539 57,909
Income tax expense 23,323 17,023 19,936 20,837 19,724
Net income $ 53,031 49,244 45,510 41,702 38,185
Share data:
Average equivalent diluted shares
(in thousands) 75,306 74,618 73,673 73,044 73,940
Tangible book value $ 3.06 3.16 2.88 2.77 2.36
Cash dividends .600 .600 .541 .471 .425
Basic earnings .713 .678 .640 .590 .537
Diluted earnings .704 .660 .618 .571 .516
Financial:
Return on average assets 1.96% 1.83 1.83 1.76 1.58
Return on average shareholders' equity<F1> 26.21 26.08 25.31 24.07 22.52
Cash dividend payout ratio 83.98 88.60 84.58 79.78 79.16
Tier 1 capital as a % of total risk adjusted
assets 16.54 15.48 13.58 14.03 13.55
Total capital as a % of total risk adjusted
assets 17.82 16.77 14.86 15.32 14.84
Efficiency ratio 38.33 36.66 38.96 38.06 38.62
Net interest margin 3.94% 4.00 4.31 4.47 4.16
Average balances:
Total assets $2,710,175 2,693,505 2,488,169 2,372,926 2,411,195
Earning assets 2,606,292 2,579,379 2,376,359 2,292,094 2,335,682
Loans, net 1,275,023 1,512,448 1,518,768 1,395,414 1,329,458
Allowance for loan losses (51,311) (56,525) (57,398) (56,362) (56,449)
Securities available for sale 833,905 568,056 581,669 654,454 683,790
Deposits 2,340,827 2,212,440 2,027,650 1,985,803 2,043,149
Short-term borrowings 107,799 210,363 205,821 164,114 146,667
Long-term debt 326 510 758 596 --
Shareholders' equity 225,045 214,963 202,848 175,973 179,484
<FN>
<F1> Average shareholders' equity excludes the market adjustment for securities available for sale.
</FN>
In the opinion of management, there are no accounting changes, acquisitions
or uncertainties that materially affect the comparability of the above
information.
25
(LOGO)
TRUSTCO
Bank Corp NY
Glossary of Terms
Allowance for Loan Losses
A balance sheet account which has been accumulated over a period of years as
a reserve against the inherent risk of loss on the loan portfolio. The
provision for loan losses is added to the allowance account, charge offs of
loans decrease the allowance balance and recoveries on previously charged off
loans serve to increase the balance.
Basic Earnings Per Share
Net income divided by the weighted average number of common shares
outstanding during the period.
Cash Dividends Per Share
Total cash dividends for each share outstanding on the record dates.
Comprehensive Income
Net income plus the change in selected items recorded directly to capital
such as the net change in unrealized market gains and losses on securities
available for sale.
Core Deposits
Deposits that are traditionally stable, including all deposits other than
time deposits of $100,000 or more.
Derivative Investments
Investments in futures contracts, forwards, swaps, or other investments with
similar characteristics.
Diluted Earnings Per Share
Net income divided by the weighted average number of common shares
outstanding during the period, taking into consideration the effect of any
dilutive stock options.
Earning Assets
The sum of interest-bearing deposits with banks, securities available
for sale, investment securities, loans, net of unearned income, and federal
funds sold.
Efficiency Ratio
Noninterest expense (excluding goodwill amortization expense, nonrecurring
charges, and other real estate expense) divided by taxable equivalent net
interest income plus noninterest income (excluding securities transactions).
This is an indicator of the recurring total cost of operating the Company in
relation to the recurring total income generated.
Federal Funds Sold
A one day investment of excess cash reserves from one bank to another.
Impaired Loans
Loans, principally commercial, where it is probable that the borrower will be
unable to make the principal and interest payments according to the
contractual terms of the loan, and all loans restructured subsequent to
January 1, 1995.
Interest Bearing Liabilities
The sum of interest bearing deposits, federal funds purchased, securities
sold under agreements to repurchase, other short-term borrowings, and
long-term debt.
Interest Rate Spread
The difference between the taxable equivalent yield on earning assets and the
rate paid on interest bearing liabilities.
Liquidity
The ability to meet loan commitments, deposit withdrawals, and maturing
borrowings as they come due.
Net Interest Income
The difference between income on earning assets and interest expense on
interest bearing liabilities.
Net Interest Margin
Fully taxable equivalent net interest income as a percentage of average
earning assets.
Net Loans Charged Off
Reductions to the allowance for loan losses written off as losses, net of the
recovery of loans previously charged off.
Nonaccrual Loans
Loans for which no periodic accrual of interest income is recognized.
Nonperforming Assets
The sum of nonperforming loans plus foreclosed real estate properties.
Nonperforming Loans
The sum of loans in a nonaccrual status (for purposes of interest
recognition), plus loans whose repayment criteria have been renegotiated to
less than market terms due to the inability of the borrowers to repay the
loan in accordance with its original terms, plus accruing loans three
payments or more past due as to principal or interest payments.
Parent Company
A company that owns or controls a subsidiary through the ownership of voting
stock.
Real Estate Owned
Real estate acquired through foreclosure proceedings.
Restructured Loans
A refinanced loan in which the bank allows the borrower certain concessions
that would normally not be considered. The concessions are made in light of
the borrower's financial difficulties and the bank's objective to maximize
recovery on the loan.
Return on Average Assets
Net income as a percentage of average total assets.
Return on Average Equity
Net income as a percentage of average equity, excluding the impact of the
mark to market adjustment for securities available for sale.
Risk-Adjusted Assets
A regulatory calculation that assigns risk factors to various assets on the
balance sheet.
Risk-Based Capital
The amount of capital required by federal regulatory standards, based on a
risk-weighting of assets.
Tangible Book Value Per Share
Total shareholders' equity (less goodwill) divided by shares outstanding on
the same date. This provides an indication of the tangible book value of a
share of stock.
Taxable Equivalent (TE)
Tax exempt income that has been adjusted to an amount that would yield the
same after tax income had the income been subject to taxation at the
statutory federal and/or state income tax rates.
Tier 1 Capital
Total shareholders' equity excluding the market value adjustment of
securities available for sale.
26
(LOGO)
TRUSTCO
Bank Corp NY
Management's Statement of Responsibilities
Responsibility for the financial information presented in the annual report
rests with TrustCo Bank Corp NY's management. The company believes that the
consolidated financial statements reflect fairly the substance of
transactions and present fairly the company's financial position and results
of operations in conformity with generally accepted accounting principles
appropriate in the circumstances, applying certain estimates and judgments as
required.
In meeting its responsibilities for the reliability of the consolidated
financial statements, the Company depends on its system of internal
accounting controls. The system is designed to provide reasonable assurance
that assets are safeguarded and transactions are executed in accordance with
the appropriate corporate authorizations and recorded properly to permit the
preparation of consolidated financial statements in accordance with generally
accepted accounting principles. Although accounting control procedures are
designed to achieve these objectives, it must be recognized that errors or
irregularities may nevertheless occur. Also, estimates and judgments are
required to assess and balance the relative cost and expected benefits of the
controls. The Company believes that its accounting controls provide
reasonable assurance that errors or irregularities that could be material to
the consolidated financial statements are prevented or would be detected
within a timely period by employees in the normal course of performing their
assigned functions. An important element of the system of internal controls
is a continuing and extensive internal audit program.
The Board of Directors of the Company has an Audit Committee composed
entirely of directors who are not officers or employees of the Company. The
Committee meets periodically and privately with management, the internal
auditors, and the independent public accountants to consider audit results
and to discuss internal accounting controls, auditing, and financial
reporting matters.
KPMG LLP, independent public accountants, have been engaged to render an
independent professional opinion on the Company's consolidated financial
statements. Their audit is conducted in accordance with auditing standards
generally accepted in the United States of America and forms the basis for
their report as to the fair presentation, in the consolidated financial
statements, of the Company's financial position, operating results, and cash
flows.
/s/ Robert J. McCormick /s/ Robert T. Cushing
Robert J. McCormick Robert T. Cushing
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
TrustCo Bank Corp NY TrustCo Bank Corp NY
February 20, 2004
27
(LOGO)
TRUSTCO
Bank Corp NY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have audited the accompanying consolidated statements of condition of
TrustCo Bank Corp NY and subsidiaries (the Company) as of December 31, 2003
and 2002, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2003. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TrustCo
Bank Corp NY and subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Albany, New York
February 20, 2004
28
(LOGO)
TRUSTCO
Bank Corp NY
Consolidated Statements of Income
(dollars in thousands, except per share data) Years Ended December 31,
2003 2002 2001
Interest income:
Interest and fees on loans $ 87,614 111,993 119,370
Interest and dividends on:
U.S. Treasuries and agencies 25,985 11,649 12,044
States and political subdivisions 10,718 11,905 11,008
Mortgage-backed securities 3,618 4,483 10,653
Other 3,541 5,247 4,736
Interest on federal funds sold and other short-term investments 5,654 8,458 10,849
Total interest income 137,130 153,735 168,660
Interest expense:
Interest on deposits 39,843 55,150 66,063
Interest on short-term borrowings 877 2,840 6,655
Interest on long-term debt 19 30 45
Total interest expense 40,739 58,020 72,763
Net interest income 96,391 95,715 95,897
Provision for loan losses 1,200 1,420 4,940
Net interest income after provision for loan losses 95,191 94,295 90,957
Noninterest income:
Trust department income 6,046 6,769 7,758
Fees for services to customers 10,896 10,305 10,363
Net gain on securities transactions 9,807 7,499 4,517
Other 2,900 2,725 3,164
Total noninterest income 29,649 27,298 25,802
Noninterest expense:
Salaries and employee benefits 20,449 22,338 25,879
Net occupancy expense 6,265 5,594 5,523
Equipment expense 3,078 2,946 4,942
Professional services 3,040 8,987 2,717
Outsourced services 5,601 2,055 350
Charitable contributions 513 1,588 442
Other real estate income, net (457) (348) (748)
Other 9,997 12,166 12,208
Total noninterest expense 48,486 55,326 51,313
Income before income taxes 76,354 66,267 65,446
Income taxes 23,323 17,023 19,936
Net income $ 53,031 49,244 45,510
Earnings per share:
Basic $ .713 .678 .640
Diluted .704 .660 .618
See accompanying notes to consolidated financial statements.
29
(LOGO)
TRUSTCO
Bank Corp NY
Consolidated Statements of Condition
(dollars in thousands, except share data) As of December 31,
2003 2002
ASSETS
Cash and due from banks $ 56,425 63,957
Federal funds sold and other short-term investments 355,257 542,125
Total cash and cash equivalents 411,682 606,082
Securities available for sale 1,176,926 653,163
Loans 1,162,647 1,422,841
Less: Unearned income 381 540
Allowance for loan losses 48,739 52,558
Net loans 1,113,527 1,369,743
Bank premises and equipment 20,168 19,544
Real estate owned -- 86
Other assets 55,816 47,470
Total assets $2,778,119 2,696,088
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 197,116 178,058
Savings 780,862 715,349
Interest bearing checking accounts 334,038 338,740
Money market deposit accounts 159,645 130,914
Certificates of deposit (in denominations of $100,000 or more) 170,423 137,513
Other time accounts 777,726 773,694
Total deposits 2,419,810 2,274,268
Short-term borrowings 90,608 141,231
Long-term debt 239 427
Accrued expenses and other liabilities 40,700 45,318
Total liabilities 2,551,357 2,461,244
Shareholders' equity:
Capital stock; $1 par value. 100,000,000
shares authorized, 80,711,016 and 79,107,851 shares issued
at December 31, 2003 and 2002, respectively 80,711 79,108
Surplus 103,611 92,009
Undivided profits 78,051 69,553
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale, net of tax 21,042 27,277
Treasury stock; 6,765,119 and 4,930,300 shares, at cost,
at December 31, 2003 and 2002, respectively (56,653) (33,103)
Total shareholders' equity 226,762 234,844
Total liabilities and shareholders' equity $2,778,119 2,696,088
See accompanying notes to consolidated financial statements.
30
(LOGO)
TRUSTCO
Bank Corp NY
Consolidated Statements of Changes in Shareholders' Equity
(dollars in thousands, except per share data) Three Years Ended December 31, 2003
Accumulated
Other Compre-
Capital Undivided Comprehensive hensive Treasury
Stock Surplus Profits Income/(Loss) Income Stock Total
Beginning balance, January 1, 2001 $65,172 78,407 56,923 20,539 (25,198) 195,843
Comprehensive income
Net income -- 2001 -- -- 45,510 -- 45,510 -- 45,510
Other comprehensive income, net of tax:
Unrealized net holding gain arising during
the year, net of tax (pre-tax gain $6,495) -- -- -- -- 3,801 -- --
Reclassification adjustment for net gain realized
in net income during the year (pre-tax gain $4,517) -- -- -- -- (2,672) -- --
Other comprehensive income -- -- -- 1,129 1,129 -- 1,129
Comprehensive income 46,639
Cash dividend declared, $.541 per share -- -- (38,493) -- -- (38,493)
Stock options exercised and related tax benefits 1,078 6,288 -- -- -- 7,366
15% stock split (9,918,991) 9,919 (9,919) -- -- -- --
Treasury stock purchased (973,622 shares) -- -- -- -- (12,238) (12,238)
Sale of treasury stock (519,112 shares) -- 579 -- -- 6,131 6,710
Ending balance, December 31, 2001 76,169 75,355 63,940 21,668 (31,305) 205,827
Comprehensive income
Net income -- 2002 -- -- 49,244 -- 49,244 -- 49,244
Other comprehensive income, net of tax:
Unrealized net holding gain arising during
the year, net of tax (pre-tax gain $16,729) -- -- -- -- 10,166 -- --
Reclassification adjustment for net gain realized
in net income during the year (pre-tax gain $7,499) -- -- -- -- (4,557) -- --
Other comprehensive income -- -- -- 5,609 5,609 -- 5,609
Comprehensive income 54,853
Cash dividend declared, $.600 per share -- -- (43,631) -- -- (43,631)
Stock options exercised and related tax benefits 2,939 15,946 -- -- -- 18,885
Treasury stock purchased (703,704 shares) -- -- -- -- (8,844) (8,844)
Sale of treasury stock (636,122 shares) -- 708 -- -- 7,046 7,754
Ending balance, December 31, 2002 79,108 92,009 69,553 27,277 (33,103) 234,844
Comprehensive income
Net income -- 2003 -- -- 53,031 -- 53,031 -- 53,031
Other comprehensive loss, net of tax:
Unrealized net holding loss arising during
the year, net of tax (pre-tax loss $1,059) -- -- -- -- (608) -- --
Reclassification adjustment for net gain realized
in net income during the year (pre-tax gain $9,807) -- -- -- -- (5,627) -- --
Other comprehensive loss -- -- -- (6,235) (6,235) -- (6,235)
Comprehensive income 46,796
Cash dividend declared, $.600 per share -- -- (44,533) -- -- (44,533)
Stock options exercised and related tax benefits 1,603 10,481 -- -- -- 12,084
Treasury stock purchased (2,525,000 shares) -- -- -- -- (30,034) (30,034)
Sale of treasury stock (690,181 shares) -- 1,121 -- -- 6,484 7,605
Ending balance, December 31, 2003 $80,711 103,611 78,051 21,042 (56,653) 226,762
See accompanying notes to consolidated financial statements.
31
(LOGO)
TRUSTCO
Bank Corp NY
Consolidated Statements of Cash Flows
(dollars in thousands) Years Ended December 31,
2003 2002 2001
Increase/(decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income $ 53,031 49,244 45,510
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,492 2,168 2,716
Net gain on sales of real estate owned (522) (726) (1,328)
Net (gain)/loss on sales of bank premises and equipment (263) 4 (17)
Provision for loan losses 1,200 1,420 4,940
Deferred tax (benefit)/expense (2,645) 10,500 (4,133)
Net gain on securities transactions (9,807) (7,499) (4,517)
Decrease/(increase) in taxes receivable 3,356 (8,296) (136)
(Increase)/decrease in interest receivable (2,837) 3,605 (10)
Decrease in interest payable (507) (295) (934)
(Increase)/decrease in other assets (1,761) 17,573 (4,596)
(Decrease)/increase in accrued expenses (3,636) (15,875) 4,940
Total adjustments (14,930) 2,579 (3,075)
Net cash provided by operating activities 38,101 51,823 42,435
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale 1,064,580 238,602 268,533
Proceeds from maturities of securities available for sale 3,573 180,332 158,906
Purchase of securities available for sale (1,592,974) (468,268) (402,763)
Net decrease/(increase) in loans 255,016 128,093 (85,768)
Proceeds from sales of real estate owned 608 1,282 3,344
Proceeds from sales of bank premises and equipment 271 25 113
Purchases of bank premises and equipment (2,953) (3,164) (3,451)
Net cash (used in)/provided by investing activities (271,879) 76,902 (61,086)
Cash flows from financing activities:
Net increase in deposits 145,542 181,362 81,915
Net (decrease)/increase in short-term borrowings (50,623) (76,988) 25,321
Repayment of long-term debt (188) (197) (287)
Proceeds from exercise of stock options and related tax benefits 12,084 18,885 7,366
Proceeds from sales of treasury stock 7,605 7,754 6,710
Payments to acquire treasury stock (30,034) (8,844) (12,238)
Dividends paid (45,008) (43,188) (37,009)
Net cash provided by financing activities 39,378 78,784 71,778
Net (decrease)/increase in cash and cash equivalents (194,400) 207,509 53,127
Cash and cash equivalents at beginning of year 606,082 398,573 345,446
Cash and cash equivalents at end of year $ 411,682 606,082 398,573
SUPPLEMENTAL INFORMATION:
Interest paid $ 41,246 58,315 73,697
Income taxes paid 18,865 8,035 21,085
Transfer of loans to real estate owned -- 227 1,423
(Decrease)/increase in dividends payable (475) 443 1,484
Change in unrealized gain on securities available for sale -- gross 10,865 (9,230) (1,978)
Change in deferred tax effect on unrealized gain on securities
available for sale (4,630) 3,621 849
See accompanying notes to consolidated financial statements.
32
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The accounting and financial reporting policies of TrustCo Bank Corp NY
(Company or TrustCo), ORE Subsidiary Corp., Trustco Bank (referred to as
Trustco Bank or Bank), and its wholly owned subsidiary, Trustco Vermont
Investment Company, conform to general practices within the banking
industry and are in conformity with accounting principles generally accepted
in the United States of America. A description of the more significant
policies follows.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements of the Company include the accounts
of the subsidiaries after elimination of all significant intercompany
accounts and transactions.
Securities Available for Sale
Securities available for sale are carried at approximate market value with
any unrealized appreciation or depreciation of value, net of tax, included as
an element of accumulated other comprehensive income in shareholders' equity.
Management maintains an available for sale portfolio in order to provide
maximum flexibility in balance sheet management. The designation of available
for sale is made at the time of purchase based upon management's intent to
hold the securities for an indefinite period of time. These securities,
however, are available for sale in response to changes in market interest
rates, related changes in liquidity needs, or changes in the availability of
and yield on alternative investments. Unrealized losses on securities that
reflect a decline in value which is other than temporary, if any, are charged
to income. Nonmarketable equity securities (principally stock of the Federal
Reserve Bank and the Federal Home Loan Bank, both of which are required
holdings for the Company) are included in securities available for sale at
cost since there is no readily available market value.
The cost of debt securities available for sale is adjusted for
amortization of premium and accretion of discount on a method that equates to
the level yield.
Gains and losses on the sale of securities available for sale are based on
the amortized cost of the specific security sold.
Loans
Loans are carried at the principal amount outstanding net of unearned
income and unamortized loan fees and costs, which are recognized as income
over the applicable loan term.
Nonperforming loans include nonaccrual loans, restructured loans, and
loans which are three payments or more past due and still accruing interest.
Generally, loans are placed in nonaccrual status either due to the delinquent
status of principal and/or interest payments, or a judgment by management
that, although payments of principal and/or interest are current, such action
is prudent. Future payments received on nonperforming loans are recorded as
interest income or principal reductions based upon management's ultimate
expectation for collection. Loans may be removed from nonaccrual status when
they become current as to principal and interest and have demonstrated a
sustained ability to make loan payments in accordance with the contractual
terms of the loan. Loans may also be removed from nonaccrual status when, in
the opinion of management, the loan is expected to be fully collectable as to
principal and interest.
Impaired loans have been defined as commercial and commercial real estate
loans in nonaccrual status and restructured loans.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate
by management to provide for probable loan losses based on consideration of
the credit risk of the loan portfolio, including a review of past experience,
current economic conditions, and underlying collateral value. The allowance
is increased by provisions charged against income and reduced by net charge
offs.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to change the allowance based
on their judgments of information available to them at the time of their
examination.
Bank Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization computed on either the straight-line or accelerated methods
over the remaining useful lives of the assets.
33
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
Real Estate Owned
Real estate owned are assets acquired through foreclosures on loans.
Foreclosed assets held for sale are recorded on an individual basis at the
lower of (1) fair value minus estimated costs to sell or (2) "cost" (which is
the fair value at initial foreclosure). When a property is acquired, the
excess of the loan balance over fair value is charged to the allowance for
loan losses. Subsequent write downs are included in noninterest expense.
Income Taxes
Deferred taxes are recorded for the future tax consequences of events that
have been recognized in the financial statements or tax returns based upon
enacted tax laws and rates. Deferred tax assets are recognized subject to
management's judgment that realization is more likely than not.
Dividend Restrictions
Banking regulations restrict the amount of cash dividends which may be paid
during a year by Trustco Bank to the Parent Company without the written
consent of the appropriate bank regulatory agency. Based on these
restrictions, during 2004 Trustco Bank could pay cash dividends to the Parent
Company of $23.2 million plus 2004 year-to-date net profits. In addition, at
December 31, 2003 the Parent Company has $52.8 million of assets available to
pay dividends to shareholders.
Benefit Plans
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and the
employee's compensation.
The Company has a postretirement benefit plan that permits retirees
under age 65 to participate in the Company's medical plan by paying the same
premium as active employees. At age 65, the Company provides a Medicare
Supplemental program to retirees.
Stock Option Plans
The Company has stock option plans for officers and directors and has
adopted the disclosure only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123)
and Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure" (Statement 148).
Stock options were not issued in 2003 for officers or directors. The
Company's stock option plans are accounted for in accordance with the
provisions of Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" (APB Opinion 25)and as such, no compensation expense
has been recorded for these plans. Had compensation expense for the Company's
stock option plans been determined consistent with Statement 123, the
Company's net income and earnings per share would have been as follows:
(dollars in thousands,
except per share data) 2003 2002 2001
Net income:
As reported $53,031 49,244 45,510
Deduct: total stock-based
compensation expense
determined under fair
value based method
for all awards, net of
related tax effects (926) (1,207) (1,186)
Pro forma net income $52,105 48,037 44,324
Earnings per share:
Basic - as reported $ .713 .678 .640
Basic - pro forma .701 .661 .623
Diluted - as reported .704 .660 .618
Diluted - pro forma .692 .645 .603
The weighted average fair value of each option as of the grant date,
estimated using the Black-Scholes pricing model, and calculated in accordance
with Statement 123 was as follows for options granted in the year indicated:
Employees' Directors'
Plan Plan
2002 $1.730 1.680
2001 1.791 1.800
The following assumptions were utilized in the calculation of the fair
value of the options under Statement 123:
Employees' Directors'
Plan Plan
Expected dividend yield:
2002 4.45% 4.45
2001 5.07 5.07
Risk-free interest rate:
2002 4.10 3.79
2001 4.63 4.56
Expected volatility rate:
2002 21.75 22.41
2001 22.90 23.42
Expected lives 7.5 years 6.0 years
Earnings Per Share
Basic EPS is computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted EPS is computed by
dividing net income by the weighted average number of common shares
outstanding during the period, taking into consideration the effect of any
dilutive stock options.
34
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
Reclassification of Prior Year Statements
It is the Company's policy to reclassify prior year consolidated
financial statements to conform to the current year presentation.
Segment Reporting
The Company's operations are exclusively in the financial services
industry and include the provision of traditional banking services.
Management evaluates the performance of the Company based on only one
business segment, that of community banking. The Company operates primarily
in the geographical region of Upstate New York. In the opinion of management,
the Company does not have any other reportable segments as defined by
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information".
Cash and Cash Equivalents
The Company classifies cash on hand, cash due from banks, federal funds
sold, and other short-term investments as cash and cash equivalents for
disclosure purposes.
Trust Assets
Assets under management by the Trust Department are not included on the
Company's consolidated financial statements because the Trust Department
holds these assets in a fiduciary capacity.
Intangible Assets
Intangible assets consist of goodwill arising from the acquisition of
Landmark Financial Corporation in a purchase business combination during
2000. Due to the adoption of Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" effective January 1, 2002,
goodwill is no longer being amortized. The Company considers this intangible
asset to be unimpaired at December 31, 2003 and 2002. Goodwill at December
31, 2003 and 2002 was $553 thousand.
Comprehensive Income
Comprehensive income represents the sum of net income and items of other
comprehensive income or loss, which are reported directly in shareholders'
equity, net of tax, such as the change in net unrealized gain or loss on
securities available for sale. The Company has reported comprehensive income
and its components in the Consolidated Statement of Changes in Shareholders'
Equity. Accumulated other comprehensive income or loss, which is a component
of shareholders' equity, represents the net unrealized gain or loss on
securities available for sale, net of tax.
(2) Balances at Other Banks
The Company is required to maintain certain reserves of vault cash
and/or deposits with the Federal Reserve Bank. The amount of this reserve
requirement, included in cash and due from banks, was approximately $16.3
million and $16.6 million at December 31, 2003 and 2002, respectively.
(3) Securities Available for Sale
The amortized cost and approximate market value of the securities
available for sale are as follows:
(dollars in thousands) December 31, 2003
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasuries
and agencies $ 863,528 4,517 4,386 863,659
States and political
subdivisions 182,118 9,722 113 191,727
Mortgage-backed
securities 64,718 1,642 38 66,322
Other 685 -- -- 685
Total debt
securities 1,111,049 15,881 4,537 1,122,393
Equity securities 30,880 23,768 115 54,533
Total securities
available for
sale $1,141,929 39,649 4,652 1,176,926
(dollars in thousands) December 31, 2002
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasuries
and agencies $224,576 5,852 -- 230,428
States and political
subdivisions 223,873 11,672 50 235,495
Mortgage-backed
securities 49,537 3,054 -- 52,591
Other 26,068 91 21 26,138
Total debt
securities 524,054 20,669 71 544,652
Equity securities 83,246 25,337 72 108,511
Total securities
available for sale $607,300 46,006 143 653,163
Federal Home Loan Bank stock and Federal Reserve Bank stock included in
equity securities at December 31, 2003 and 2002, was $14.4 million and $16.0
million, respectively.
35
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
The following table distributes the debt securities included in the available
for sale portfolio as of December 31, 2003, based on the securities' final
maturity (mortgage-backed securities are stated using an estimated average
life):
(dollars in thousands) Approximate
Amortized Market
Cost Value
Due in one year or less $ 956 959
Due after one year through five years 3,946 3,997
Due after five years through ten years 94,350 93,924
Due after ten years 1,011,797 1,023,513
$1,111,049 1,122,393
Actual maturities may differ from contractual maturities because of
securities prepayments and the right of certain issuers to call or prepay
their obligations without penalty.
Gross unrealized losses on investment securities available for sale and
the related fair values aggregated by the length of time that individual
securities have been in an unrealized loss position, were as follows:
(dollars in thousands) December 31, 2003
Less than 12 months
12 months or more Total
Gross Gross Gross
Fair Unreal. Fair Unreal. Fair Unreal.
Value Loss Value Loss Value Loss
U.S. Treasuries
and agencies $321,188 4,386 -- -- 321,188 4,386
States and political
subdivisions 4,661 113 -- -- 4,661 113
Mortgage-backed
securities 19,393 38 -- -- 19,393 38
Equity securities 4,790 115 -- -- 4,790 115
Total $350,032 4,652 -- -- 350,032 4,652
U.S. Treasuries, agencies, States and political subdivisions: The unrealized
losses on these investments have been in that position for less than 12
months and were caused by market interest rate increases. The contractual
terms of these investments require the issuer to settle the securities at par
upon maturity of the investment. Because the Company has the ability and
intent to hold these investments until a market price recovery or possibly to
maturity, these investments are not considered other-than-temporarily
impaired.
Mortgage-backed securities: The unrealized losses on investments in
mortgage-backed securities have been in that position for less than 12 months
and were caused by market interest rate increases. The contractual cash flows
of these securities are guaranteed by various government agencies or
government sponsored enterprises, such as GNMA, FNMA, and FHLMC. Because the
decline in fair value is attributable to changes in market interest rates and
not credit quality, and because the Company has the ability and intent to
hold these investments until a market price recovery or possibly to maturity,
these investments are not considered other-than-temporarily impaired.
Equity securities: The investment in equity securities with an unrealized
loss has been in that position for less than 12 months and is comprised of a
U.S. Government sponsored entity's preferred stock purchased at a premium.
The primary cause of this loss is a change in market interest rates. Because
the decline in fair value is attributable to changes in interest rates and
not credit quality, and because the Company has the ability and intent to
hold this investment until a market price recovery or possibly to maturity,
this investment is not considered other-than-temporarily impaired.
The proceeds from sales and calls of securities, gross realized gains and
gross realized losses from sales and calls during 2003, 2002 and 2001 are as
follows:
(dollars in thousands) December 31,
2003 2002 2001
Proceeds $1,064,580 238,602 268,533
Gross realized gains 22,645 9,617 6,378
Gross realized losses 12,838 2,118 1,861
The amount of securities available for sale that have been pledged to
secure short-term borrowings, public deposits, and for other purposes
required by law amounted to $105.1 million and $282.9 million at December 31,
2003 and 2002, respectively.
There are no securities of a single issuer (excluding issues of the U.S.
government and its agencies or government sponsored enterprises and federal
funds sold which are disclosed separately on the Consolidated Statements of
Condition) that represent 10% or more of shareholders' equity at December 31,
2003 and 2002.
(4) Loans and Allowance for Loan Losses
A summary of loans by category is as follows:
(dollars in thousands) December 31,
2003 2002
Commercial $ 190,501 199,795
Real estate - construction 7,476 7,252
Real estate mortgage 779,227 1,059,035
Home equity lines of credit 171,078 139,294
Installment loans 14,365 17,465
Total loans 1,162,647 1,422,841
Less: Unearned income 381 540
Allowance for loan losses 48,739 52,558
Net loans $1,113,527 1,369,743
36
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
At December 31, 2003 and 2002, loans to executive officers, directors, and
to associates of such persons aggregated $4.0 million and $4.9 million,
respectively. During 2003, $1.7 million of new loans were made and repayments
of loans totalled $2.6 million. In the opinion of management, such loans were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions. These loans do not involve more than normal risk of
collectibility or present other unfavorable features.
TrustCo lends primarily in the Capital District region of New York State
and in the geographic territory surrounding its borders. Although the loan
portfolio is diversified, a portion of its debtors' ability to repay is
dependent upon the economic conditions prevailing in New York State.
The following table sets forth information with regard to nonperforming
loans:
(dollars in thousands) December 31,
2003 2002 2001
Loans in nonaccrual status $ -- 615 1,090
Loans contractually past due
3 payments or more and still
accruing interest -- -- 801
Restructured loans 3,260 4,303 5,159
Total nonperforming loans $3,260 4,918 7,050
Interest on nonaccrual and restructured loans of $500 thousand in 2003,
$700 thousand in 2002, and $900 thousand in 2001 would have been earned in
accordance with the original contractual terms of the loans. Approximately
$431 thousand, $649 thousand, and $524 thousand of interest on nonaccrual and
restructured loans was collected and recognized as income in 2003, 2002, and
2001, respectively. There are no commitments to extend further credit on
nonaccrual or restructured loans.
Transactions in the allowance for loan losses account are summarized as
follows:
(dollars in thousands) For the years ended December 31,
2003 2002 2001
Balance at beginning of year $ 52,558 57,203 56,298
Provision for loan losses 1,200 1,420 4,940
Loans charged off (9,598) (8,350) (7,028)
Recoveries on loans
previously charged off 4,579 2,285 2,993
Balance at year end $ 48,739 52,558 57,203
The Company identifies impaired loans and measures the impairment in
accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (Statement 114), as
amended. A loan is considered impaired when it is probable that the borrower
will be unable to repay the loan according to the original contractual terms
of the loan agreement or the loan is restructured in a troubled debt
restructuring subsequent to January 1, 1995. These standards are applicable
principally to commercial and commercial real estate loans; however, certain
provisions dealing with restructured loans also apply to retail loan
products.
There were no nonaccrual commercial and commercial real estate loans
classified as impaired loans at December 31, 2003 and $118 thousand at
December 31, 2002. Retail loans totalling $3.1 million as of December 31,
2003, and $4.1 million as of December 31, 2002, were restructured after the
effective date of Statement 114 and, accordingly, are identified as impaired
loans. None of the allowance for loan losses has been specifically allocated
to these impaired loans because management believes that the collateral
values support the loan balances.
During 2003, 2002, and 2001, the average balance of impaired loans was
$3.7 million, $4.9 million, and $5.1 million, respectively, and there was
approximately $380 thousand, $540 thousand, and $438 thousand of interest
income recorded on these loans in the accompanying Consolidated Statements of
Income.
(5) Bank Premises and Equipment
A summary of premises and equipment at December 31, 2003 and 2002 follows:
(dollars in thousands) 2003 2002
Land $ 2,786 2,959
Buildings 26,942 26,048
Furniture, fixtures and equipment 21,379 21,004
Leasehold improvements 6,072 4,564
57,179 54,575
Accumulated depreciation and
amortization (37,011) (35,031)
Total $ 20,168 19,544
Depreciation and amortization expense approximated $2.5 million, $2.2
million, and $2.7 million for the years 2003, 2002, and 2001, respectively.
Occupancy expense of the Bank's premises included rental expense of $1.8
million in 2003, $1.6 million in 2002, and $1.7 million in 2001.
37
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
(6) Short-Term Borrowings
Short-term borrowings consisted of the following:
(dollars in thousands) 2003
Trustco Cash
Short-Term Management
Account Account Total
Amount outstanding at
December 31, 2003 $ -- 90,608 90,608
Maximum amount
outstanding at any
month end 91,184 90,608 181,792
Average amount
outstanding 33,045 74,754 107,799
Weighted average interest rate:
For the year 0.82% 0.84 0.83
As of year end -- 0.65 0.65
(dollars in thousands) 2002
Trustco Cash
Short-Term Management
Account Account Total
Amount outstanding at
December 31, 2002 $ 78,681 62,550 141,231
Maximum amount
outstanding at any
month end 180,226 71,880 252,106
Average amount
outstanding 135,249 75,114 210,363
Weighted average interest rate:
For the year 1.40% 1.26 1.35
As of year end 0.95 0.95 0.95
The Trustco Short-Term Investment Account balances were immediately
withdrawable. All short-term borrowings were collateralized by securities of
the Bank pledged for that purpose.
The Cash Management Account represents retail deposits with customers for
which the Bank has pledged certain assets as collateral.
Trustco also has an available line of credit with the Federal Home Loan
Bank.
(7) Long-Term Debt
Long-term debt at December 31, 2003 and 2002, of $239 thousand and $427
thousand consisted of FHLB term loans with interest rates ranging from 5.22%
to 6.29% and maturities ranging from June 2004 to October 2008. This debt was
assumed as part of an acquisition during 2000. The FHLB loans are
collateralized by 1-4 family residential mortgages.
(8) Income Taxes
A summary of income tax expense/(benefit) included in the Consolidated
Statements of Income follows:
For the years ended December 31,
(dollars in thousands) 2003 2002 2001
Current tax expense (benefit):
Federal $ 25,104 8,398 22,129
State 864 (1,875) 1,940
Total Current tax expense 25,968 6,523 24,069
Deferred tax (benefit) expense (2,645) 10,500 (4,133)
Total income tax expense $ 23,323 17,023 19,936
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 2003 and 2002, are as follows:
December 31,
(dollars in thousands) 2003 2002
Deductible/ Deductible/
(taxable) (taxable)
temporary temporary
differences differences
Bond accounting $ (630) (399)
Benefits and deferred
remuneration 2,104 813
Deferred loan fees, net 154 228
Difference in reporting the
provision for loan losses, net 22,309 23,368
Other income or expense
not yet reported for tax purposes 9,232 7,208
Depreciable assets 2,068 2,042
Other items 956 288
Net deferred tax asset
at end of year 36,193 33,548
Net deferred tax asset at
beginning of year 33,548 44,048
Deferred tax benefit/(expense) $ 2,645 (10,500)
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not. Based primarily on the sufficiency of
historical and expected future taxable income, management believes it is more
likely than not that the remaining net deferred tax asset of $36.2 million
and $33.5 million at December 31, 2003 and 2002, respectively, will be
realized.
In addition to the deferred tax items described in the preceding table, the
Company also has deferred tax liabilities of $14.0 million and $18.6 million
at December 31, 2003 and 2002, respectively, relating to the net unrealized
gains on securities available for sale at the respective dates.
38
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
The effective tax rates differ from the statutory federal income tax rate.
The reasons for these differences are as follows:
For the years ended
December 31,
2003 2002 2001
Statutory federal income tax rate 35.0% 35.0 35.0
Increase/(decrease)
in taxes resulting from:
Tax exempt income (4.6) (5.8) (5.2)
State income tax, net of
federal tax benefit 0.8 0.5 1.1
Change in valuation allowance -- (1.8) --
Other items (0.6) (2.2) (0.4)
Effective income tax rate 30.6% 25.7 30.5
During the fourth quarter 2002, Robert A. McCormick retired as President
and Chief Executive Officer of TrustCo. As a result of his retirement the
Company paid out his deferred compensation and supplemental retirement
package. As a result of the timing of these payments, any uncertainty
relative to the deductibility of these payments for tax purposes was
eliminated and the tax valuation reserve of $1.1 million was recaptured.
(9) Benefit Plans
(a) Retirement Plan
The Company maintains a trusteed non-contributory pension plan covering
employees that have completed one year of employment and 1,000 hours of
service. The benefits are based on the sum of (a) a benefit equal to a prior
service benefit plus the average of the employees' highest five consecutive
years' compensation in the ten years preceding retirement multiplied by a
percentage of service after a specified date plus (b) a benefit based upon
career average compensation. The amounts contributed to the plan are
determined annually on the basis of (a) the maximum amount that can be
deducted for federal income tax purposes or (b) the amount certified by a
consulting actuary as necessary to avoid an accumulated funding deficiency as
defined by the Employee Retirement Income Security Act of 1974. Contributions
are intended to provide not only for benefits attributed to service to date
but also for those expected to be earned in the future. Assets of the plan
are administered by Trustco Bank's Trust Department. The following tables set
forth the plan's funded status as of a December 31 measurement date and
amounts recognized in the Company's consolidated statements of condition at
December 31, 2003 and 2002.
Change in Projected Benefit Obligation:
(dollars in thousands) 2003 2002
Projected benefit obligation
at beginning of year $22,169 21,587
Service cost 695 651
Interest cost 1,409 1,359
Benefits paid (1,394) (1,301)
Net actuarial loss (gain) 1,676 (127)
Projected benefit obligation
at end of year $24,555 22,169
Change in Plan Assets and
Reconciliation of Funded Status:
(dollars in thousands) 2003 2002
Fair value of plan assets at
beginning of year $26,251 30,740
Actual gain (loss) on plan assets 3,617 (3,188)
Benefits paid (1,394) (1,301)
Fair value of plan assets
at end of year 28,474 26,251
Funded status 3,919 4,082
Unrecognized net actuarial gain (544) (268)
Unrecognized prior service cost 707 732
Net amount recognized $ 4,082 4,546
The accumulated benefit obligation for the plan was $21.5 million and
$19.6 million at December 31, 2003 and 2002, respectively.
Components of Net Periodic Pension Expense/(Benefit):
For the years ended
December 31,
(dollars in thousands) 2003 2002 2001
Service cost $ 695 651 766
Interest cost 1,409 1,359 1,358
Expected return on plan assets (1,665) (2,184) (2,413)
Amortization of net actuarial gain -- (213) (428)
Amortization of unrecognized
prior service cost 25 25 23
Net periodic pension expense/(benefit) $ 464 (362) (694)
The assumptions used to determine benefit obligations at December 31 are
as follows:
2003 2002
Discount rate 6.00% 6.50
Rate of increase in future compensation 5.00 5.00
39
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
The assumptions used to determine net periodic pension expense/(benefit)
for the years ended December 31 are as follows:
2003 2002 2001
Discount rate 6.50% 6.75 6.75
Rate of increase in future
compensation 5.00 6.50 6.50
Expected long-term rate of return
on assets 6.50 7.25 7.25
The Company also has a supplementary pension plan under which additional
retirement benefits are accrued for eligible executive and senior officers.
The expense recorded for this plan was $1.2 million, $1.6 million, and $4.4
million, in 2003, 2002, and 2001, respectively.
Rabbi trusts have been established for certain benefit plans. These rabbi
trust accounts are administered by the Company's Trust Department and invest
primarily in money market instruments. These assets are recorded at their
market value and are included as other assets in the December 31, 2003 and
2002, Consolidated Statements of Condition.
(b) Postretirement Benefits
The Company permits retirees under age 65 to participate in the Company's
medical plan by paying the same premium as the active employees. At age 65,
the Bank provides a Medicare Supplemental program to retirees. Assets of the
plan are invested primarily in individual stocks, index funds, and tax exempt
bonds.
The Company has amended the medical plan to reflect changes to the retiree
medical insurance coverage portion. The Company's subsidy of the retiree
medical insurance premiums will be reduced over time.
In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) became law in the United States. The Act
introduces a prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a
benefit that is at least actuarially equivalent to the Medicare benefit. In
accordance with FASB Staff Position FAS 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," the Company has elected to defer recognition of
the effects of the Act in any measures of the benefit obligation or cost.
Specific authoritative guidance on the accounting for the federal subsidy is
pending and that guidance, when issued, could require the Company to change
previously reported information. Currently, the Company does not believe it
will need to amend its plan to recognize the benefit, if any, from the Act.
The following tables show the plan's funded status as of a December 31
measurement date and amounts recognized in the Company's Consolidated
Statements of Condition at December 31, 2003 and 2002.
Change in Accumulated Benefit Obligation:
(dollars in thousands) 2003 2002
Accumulated benefit obligation
at beginning of year $10,677 6,763
Service cost 4 320
Retiree contributions 173 142
Interest cost 46 528
Benefits paid (360) (318)
Plan amendments (7,990) --
Net actuarial (gain) loss (1,760) 3,242
Accumulated benefit obligation
at end of year $ 790 10,677
Change in Plan Assets and
Reconciliation of Funded Status:
(dollars in thousands) 2003 2002
Fair value of plan assets at
beginning of year $ 9,666 10,535
Actual gain (loss) on plan assets 1,507 (933)
Retiree contributions 173 142
Taxes -- (240)
Benefits paid (360) (318)
Fair value of plan assets at end of year 10,986 9,666
Funded status 10,196 (1,011)
Unrecognized net actuarial gain (2,866) (17)
Unrecognized prior service credit (7,586) --
Net amount recognized $ (256) (1,028)
Components of Net Periodic Expense/(Benefit):
For the years ended
December 31,
(dollars in thousands) 2003 2002 2001
Service cost $ 4 320 250
Interest cost 46 528 408
Expected return on plan assets (377) (453) (502)
Amortization of net actuarial gain (43) (113) (261)
Amortization of prior service credit (403) -- --
Net periodic (benefit)/expense $(773) 282 (105)
The assumptions used to determine benefit obligations at December 31 are
as follows:
2003 2002
Discount rate 6.00% 6.50
The assumptions used to determine net periodic pension expense/(benefit)
for the years ended December 31 are as follows:
2003 2002 2001
Discount rate 6.50% 6.75 6.75
Expected long-term rate of return
on assets 3.90 4.30 4.30
40
(LOGO)
TRUSTCO
Bank Corp NY
For measurement purposes, a graded annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was
assumed for 2004 and thereafter. Due to the plan amendment recognized in 2003
relating to the reimbursed portion of the retiree's medical insurance
premiums, a one percentage point increase or decrease in the assumed health
care cost in each year would have a negligible impact on the accumulated
postretirement benefit obligation as of December 31, 2003, and the interest
and service components of net periodic postretirement benefit cost for the
year ended December 31, 2003.
(c) Major Categories of Pension and Postretirement Benefit Plan Assets:
The asset allocations of the Company's pension and postretirement benefit
plans at December 31, were as follows:
Pension Benefit Postretirement Benefit
Plan Assets Plan Assets
2003 2002 2003 2002
Debt Securities 36.55% 48.73 57.24 25.44
Equity Securities 61.45 50.58 40.47 64.90
Other 2.00 .69 2.29 9.66
Total 100.00% 100.00 100.00 100.00
The expected long-term rate-of-return on plan assets, noted in sections
(a) and (b) above, reflects long-term earnings expectations on existing plan
assets. In estimating that rate, appropriate consideration was given to
historical returns earned by plan assets and the rates of return expected to
be available for reinvestment. Rates of return were adjusted to reflect
current capital market assumptions and changes in investment allocations.
The Company's investment policies and strategies for the pension benefit
and postretirement benefit plans prescribe a target allocation of 60% equity
securities and 40% debt securities for the asset categories. The Company's
investment goals are to maximize returns subject to specific risk management
policies. Its risk management policies permit direct investments in equity
and debt securities and mutual funds while prohibiting direct investment in
derivative financial instruments. The Company addresses diversification by
the use of mutual fund investments whose underlying investments are in
domestic and international debt and equity securities. These mutual funds are
readily marketable and can be sold to fund benefit payment obligations as
they become payable.
The Company does not expect to make any contributions to its pension and
postretirement benefit plans in 2004.
(d) Incentive and Bonus Plans
The Company provides a profit-sharing plan for substantially all employees.
The expense of this plan, which is based on management discretion as
defined in the plan, amounted to $1.1 million in 2003 and 2002, and $1.0
million in 2001.
The Company also has an executive incentive plan. The expense of this plan
is based on the Company's performance and estimated distributions to
participants are accrued during the year and generally paid in the following
year. The expense recorded for this plan was $2.1 million, $3.3 million, and
$3.9 million in 2003, 2002, and 2001, respectively.
The Company has awarded 2.7 million performance bonus units to the
executive officers and directors. These units become vested and exercisable
only under a change of control as defined in the plan. The units were awarded
based upon the stock price at the time of grant and, if exercised under a
change of control, allow the holder to receive the increase in value offered
in the exchange over the stock price at the date of grant for each unit.
(e) Stock Option Plans
Under the 1995 TrustCo Bank Corp NY Stock Option Plan, the Company may
grant options to its eligible employees for up to approximately 9.9 million
shares of common stock. Under the 1993 Directors Stock Option Plan, the
Company could have granted options to its directors for up to approximately
531 thousand shares of its common stock. Under both plans, the exercise price
of each option equals the market price of the Company's stock on the date of
grant, and an option's maximum term is ten years. Options vest over five
years from the date the options are granted for the employee plan and they
are immediately vested under the directors' plan. A summary of the status of
TrustCo's stock option plans as of December 31, 2003, 2002 and 2001, and
changes during the years then ended, are as follows:
Outstanding Options Exercisable Options
Weighted Weighted
Average Average
Option Option
Shares Price Shares Price
Balance, January 1, 2001 9,293,929 $5.81 7,669,948 $5.12
New options awarded - 2001 876,702 9.75 194,384 9.75
Cancelled options - 2001 (129,621) 9.73 (129,621) 9.73
Exercised options - 2001 (1,235,206) 3.65 (1,235,206) 3.65
Options became exercisable -- -- 928,162 8.73
Balance, December 31, 2001 8,805,804 6.44 7,427,667 5.85
New options awarded - 2002 837,750 11.83 182,950 11.83
Cancelled options - 2002 (45,430) 9.96 (45,430) 9.96
Exercised options - 2002 (2,952,304) 4.16 (2,952,304) 4.16
Options became exercisable -- -- 1,112,103 10.00
Balance, December 31, 2002 6,645,820 8.11 5,724,986 7.69
New options awarded - 2003 -- -- -- --
Cancelled options - 2003 (60,396) 11.07 (60,396) 11.07
Exercised options - 2003 (1,645,222) 5.42 (1,645,222) 5.42
Options became exercisable -- -- 382,752 10.49
Balance, December 31, 2003 4,940,202 $8.97 4,402,120 $8.74
41
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
The following table summarizes information about total stock options
outstanding at December 31, 2003:
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise
Price Outstanding Life Price
Less than
$5.00 145,753 1.8 years $ 4.49
Between $5.01
and $7.50 950,432 3.8 years 5.77
Greater than
$7.51 3,844,017 6.9 years 9.93
Total 4,940,202 6.2 years $ 8.97
The following table summarizes information about the exercisable stock
options at December 31, 2003:
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise
Price Exercisable Life Price
Less than
$5.00 145,753 1.8 years $ 4.49
Between $5.01
and $7.50 950,432 3.8 years 5.77
Greater than
$7.51 3,305,935 6.7 years 9.78
Total 4,402,120 5.9 years $ 8.74
(10) Commitments and Contingent Liabilities
(a) Leases
The Bank leases certain banking premises. These leases are accounted for
as operating leases with minimum rental commitments in the amounts presented
below. The majority of these leases contain options to renew.
(dollars in thousands)
2004 $ 1,913
2005 1,831
2006 1,562
2007 1,388
2008 1,394
2009 and after 13,626
$21,714
(b) Litigation
Existing litigation arising in the normal course of business is not
expected to result in any material loss to the Company.
(c) Time Deposits
At December 31, 2003, the maturity of total time deposits is as follows:
(dollars in thousands)
Under 1 year $445,914
1 to 2 years 231,188
2 to 3 years 86,029
3 to 4 years 50,565
4 to 5 years 133,305
Over 5 years 1,148
$948,149
(d) Outsourced Services
During the fourth quarter 2001, the Company contracted with Fiserv
Solutions, Inc. to perform certain banking functions beginning 2002. The
outsourced services include data and item processing for the Bank and trust
operations. During the fourth quarter of 2002, Trustco Bank converted to the
Fiserv system. The service expense can vary based upon volume and nature of
transactions processed. Outsourced service expense was $5.6 million in 2003
and $2.1 million in 2002.
(11) Earnings Per Share
A reconciliation of the component parts of earnings per share for 2003,
2002 and 2001 follows:
(dollars in thousands, Weighted
except per share data) Average Shares Per share
Income Outstanding Amounts
For the year ended
December 31, 2003:
Basic EPS:
Income available to
common shareholders $53,031 74,337 $.713
Effect of Dilutive Securities:
Stock Options -- 969 --
Diluted EPS $53,031 75,306 $.704
For the year ended
December 31, 2002:
Basic EPS:
Income available to
common shareholders $49,244 72,675 $.678
Effect of Dilutive Securities:
Stock Options -- 1,943 --
Diluted EPS $49,244 74,618 $.660
For the year ended
December 31, 2001:
Basic EPS:
Income available to
common shareholders $45,510 71,154 $.640
Effect of Dilutive Securities:
Stock Options -- 2,519 --
Diluted EPS $45,510 73,673 $.618
The number of antidilutive stock options excluded from diluted earnings
per share for 2003, 2002, and 2001 was not significant.
42
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
(12) Off-Balance Sheet Financial Instruments
Loan commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require a fee. Commitments sometimes expire without being
drawn upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements. These arrangements have credit risk
essentially the same as that involved in extending loans to customers and are
subject to the Bank's normal credit policies, including obtaining collateral.
The Bank's maximum exposure to credit loss for loan commitments, including
unused lines of credit, at December 31, 2003 and 2002, was $273.9 million and
$253.0 million, respectively. Approximately 66% of these commitments were for
variable rate products at the end of 2003.
FASB Interpretation No. 45 (FIN No. 45), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others; an Interpretation of FASB Statements No. 5, 57, and
107 and rescission of FASB Interpretation No. 34," requires certain
disclosures and liability-recognition for the fair value at issuance of
guarantees that fall within its scope. Under FIN No. 45, the Company does not
issue any guarantees that would require liability-recognition or disclosure,
other than its standby letters of credit. The Company has issued conditional
commitments in the form of standby letters of credit to guarantee payment on
behalf of a customer and guarantee the performance of a customer to a third
party. Standby letters of credit generally arise in connection with lending
relationships. The credit risk involved in issuing these instruments is
essentially the same as that involved in extending loans to customers.
Contingent obligations under standby letters of credit totaled approximately
$3.9 million and $1.7 million at December 31, 2003 and 2002, respectively,
and represent the maximum potential future payments the Company could be
required to make. Typically, these instruments have terms of 12 months or
less and expire unused; therefore, the total amounts do not necessarily
represent future cash requirements. Each customer is evaluated individually
for creditworthiness under the same underwriting standards used for
commitments to extend credit and on-balance sheet instruments. Company
policies governing loan collateral apply to standby letters of credit at the
time of credit extension. Loan-to-value ratios are generally consistent with
loan-to-value requirements for other commercial loans secured by similar
types of collateral. The fair value of the Company's standby letters of
credit at December 31, 2003 and 2002 was insignificant.
No losses are anticipated as a result of loan commitments or standby
letters of credit.
(13) Fair Value of Financial Instruments
The fair values shown below represent management's estimates of values at
which the various types of financial instruments could be exchanged in
transactions between willing, unrelated parties. They do not necessarily
represent amounts that would be received or paid in actual transactions.
As of
(dollars in thousands) December 31, 2003
Carrying Fair
Value Value
Financial assets:
Cash and cash equivalents $ 411,682 411,682
Securities available for sale 1,176,926 1,176,926
Loans 1,113,527 1,207,958
Accrued interest receivable 17,535 17,535
Financial liabilities:
Demand deposits 197,116 197,116
Interest bearing deposits 2,222,694 2,229,139
Short-term borrowings 90,608 90,608
Long-term debt 239 239
Accrued interest payable 1,470 1,470
As of
(dollars in thousands) December 31, 2002
Carrying Fair
Value Value
Financial assets:
Cash and cash equivalents $ 606,082 606,082
Securities available for sale 653,163 653,163
Loans 1,369,743 1,473,177
Accrued interest receivable 14,698 14,698
Financial liabilities:
Demand deposits 178,058 178,058
Interest bearing deposits 2,096,210 2,112,523
Short-term borrowings 141,231 141,231
Long-term debt 427 427
Accrued interest payable 1,977 1,977
The specific estimation methods and assumptions used can have a substantial
impact on the resulting fair values of financial instruments. Following is a
brief summary of the significant methods and assumptions used in estimating
fair values:
Cash and Cash Equivalents
The carrying values of these financial instruments approximate fair
values.
43
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
Securities
Fair values for all securities portfolios are based upon quoted market
prices, where available. The carrying value of certain local, unrated
municipal obligations was used as an approximation of fair value.
Loans
The fair values of all loans are estimated using discounted cash flow
analyses with discount rates equal to the interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
Deposit Liabilities
The fair values disclosed for noninterest bearing deposits, interest
bearing checking accounts, savings accounts, and money market accounts are,
by definition, equal to the amount payable on demand at the balance sheet
date. The carrying value of all variable rate certificates of deposit
approximates fair value. The fair value of fixed rate certificates of deposit
is estimated using discounted cash flow analyses with discount rates equal to
the interest rates currently being offered on certificates of similar size
and remaining maturity.
Short-Term Borrowings, Long-Term Debt and Other Financial Instruments
The fair value of all short-term borrowings, long-term debt, and other
financial instruments approximates the carrying value.
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet
risk. Such financial instruments consist of commitments to extend financing
and standby letters of credit. If the commitments are exercised by the
prospective borrowers, these financial instruments will become interest
earning assets of the Company. If the commitments expire, the Company retains
any fees paid by the prospective borrower. The fair value of commitments is
estimated based upon fees currently charged to enter into similar agreements,
taking into consideration the remaining terms of the agreements and the
present credit worthiness of the borrower. For fixed rate commitments, the
fair value estimation takes into consideration an interest rate risk factor.
The fair value of these off-balance sheet items approximates the recorded
amounts of the related fees, which are considered to be immaterial.
The Company does not engage in activities involving interest rate swaps,
forward placement contracts, or any other instruments commonly referred to as
derivatives.
(14) Regulatory Capital Requirements
Office of Thrift Supervision (OTS) capital regulations require banks to
maintain minimum levels of regulatory capital. Under the regulations in
effect at December 31, 2003 and 2002, Trustco Bank was required to maintain a
minimum tangible capital of 1.5% of adjusted total assets, a minimum leverage
ratio of core capital to adjusted total assets of 4.00% and a minimum ratio
of total capital to risk weighted assets of 8.00%.
Federal banking regulations also establish a framework for the
classification of banks into five categories: well capitalized, adequately
capitalized, under capitalized, significantly under capitalized, and
critically under capitalized. Generally, an institution is considered well
capitalized if it has a leverage capital ratio of at least 5.0% (based on
total adjusted quarterly average assets), a Tier 1 risk-based capital ratio
of at least 6.0%, and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based on specific quantitative measures
of assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. Capital amounts and classifications
are also subject to qualitative judgments by the regulator about capital
components, risk weighting and other factors.
Management believes that as of December 31, 2003 and 2002, Trustco Bank
met all capital adequacy requirements to which it was subject. Further, the
most recent regulator notification categorized the Bank as a well-capitalized
institution. There have been no conditions or events since that notification
that management believes have changed the Bank's capital classification.
Under its prompt corrective action regulations, the OTS is required to take
certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on an institution's financial statements. As stated
above, the Bank has been classified as well capitalized for regulatory
purposes, and therefore, these regulations do not apply. The following is a
summary of actual capital amounts and ratios as of December 31, 2003 and
2002, for Trustco Bank:
(dollars in thousands) As of December 31, 2003
Amount Ratio
Leverage capital: $178,952 6.51%
Tier 1 risk-based capital: 178,952 14.54
Total risk-based capital: 194,745 15.83
(dollars in thousands) As of December 31, 2002
Amount Ratio
Leverage capital: $165,525 6.26%
Tier 1 risk-based capital: 165,525 12.62
Total risk-based capital: 182,361 13.91
44
(LOGO)
TRUSTCO
Bank Corp NY
Notes to Consolidated Financial Statements (continued)
(15) Parent Company Only
The following statements pertain to TrustCo Bank Corp NY (Parent Company):
Statements of Income
(dollars in thousands) Years Ended December 31,
Income: 2003 2002 2001
Dividends and interest
from subsidiaries $31,096 35,898 38,220
Net gain on sales of securities 12,952 7,587 2,445
Income from other investments 1,110 1,394 1,155
Total income 45,158 44,879 41,820
Expense:
Operating supplies 75 72 18
Professional services 63 6,173 188
Miscellaneous expense 95 1,167 372
Total expense 233 7,412 578
Income before income
taxes and subsidiaries'
undistributed earnings 44,925 37,467 41,242
Income tax expense 5,267 135 1,154
Income before subsidiaries'
undistributed earnings 39,658 37,332 40,088
Equity in undistributed net
income of subsidiaries 13,373 11,912 5,422
Net income $53,031 49,244 45,510
Statements of Condition
(dollars in thousands) December 31,
Assets: 2003 2002
Cash in subsidiary bank $ 17,363 18,682
Investments in subsidiaries 186,290 179,101
Securities available for sale 35,323 49,365
Other assets 1,741 172
Total assets $240,717 247,320
Liabilities and shareholders' equity:
Accrued expenses and other liabilities $ 13,955 12,476
Total liabilities 13,955 12,476
Shareholders' equity 226,762 234,844
Total liabilities and shareholders'
equity $240,717 247,320
Statements of Cash Flows
(dollars in thousands) Years Ended December 31,
2003 2002 2001
Increase/(decrease) in cash
and cash equivalents:
Cash flows from
operating activities:
Net income $ 53,031 49,244 45,510
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed net
income of subsidiaries (13,373) (11,912) (5,422)
Net gain on sales of securities (12,952) (7,587) (2,445)
Net change in other assets and
accrued expenses 972 (5,677) (2,204)
Total adjustments (25,353) (25,176) (10,071)
Net cash provided by operating
activities 27,678 24,068 35,439
Cash flows from investing activities:
Proceeds from sale of securities
available for sale 49,831 18,079 5,402
Purchase of securities available
for sale (23,475) (12,834) (8,136)
Investment in subsidiary -- -- (1,000)
Net cash provided by/(used in)
investing activities 26,356 5,245 (3,734)
Cash flows from financing activities:
Proceeds from exercise of stock
options and related tax benefits 12,084 18,885 7,366
Dividends paid (45,008) (43,188) (37,009)
Payments to acquire treasury stock (30,034) (8,844) (12,238)
Proceeds from sale of treasury
stock 7,605 7,754 6,710
Net cash used in financing
activities (55,353) (25,393) (35,171)
Net (decrease)/increase in cash and
cash equivalents (1,319) 3,920 (3,466)
Cash and cash equivalents at
beginning of year 18,682 14,762 18,228
Cash and cash equivalents at
end of year $ 17,363 18,682 14,762
Supplemental Information
Increase (decrease) in
dividends payable $ (475) 443 1,484
Change in unrealized (gain)/loss
on available for sale
securities--gross 638 1,340 (5,269)
Change in deferred tax effect on
unrealized gain/(loss) on
securities available for sale (261) (547) 2,152
45
(LOGO)
TRUSTCO
Bank Corp NY
TrustCo Bank Corp NY Officers and Board of Directors
OFFICERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Robert J. McCormick
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Robert T. Cushing
EXECUTIVE VICE PRESIDENT AND
CHIEF BANKING OFFICER
Scot R. Salvador
VICE PRESIDENT
Nancy McNamara
SECRETARY
Robert M. Leonard
ASSISTANT SECRETARY
Thomas M. Poitras
BOARD OF DIRECTORS
Barton A. Andreoli
President
Towne Construction and Paving Corp.
Construction
Joseph Lucarelli
President
Bellevue Builders Supply, Inc.
Building Supply
Anthony J. Marinello, M.D., Ph.D.
Physician
Robert A. McCormick
Chairman
TrustCo Bank Corp NY
William D. Powers
Partner
Powers, Crane &Co., LLC
Consulting
William J. Purdy
President
Welbourne & Purdy Realty, Inc.
Real Estate
Directors of TrustCo Bank Corp NY
are also Directors of Trustco Bank
HONORARY DIRECTORS
Lionel O. Barthold
M. Norman Brickman
Bernard J. King
William H. Milton, III
John S. Morris, Ph.D.
James H. Murphy, D.D.S.
Richard J. Murray, Jr.
Daniel J. Rourke, M.D.
Anthony M. Salerno
Edwin O. Salisbury
William F. Terry
Harry E. Whittingham, Jr.
Trustco Bank Officers
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Robert J. McCormick
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Robert T. Cushing
EXECUTIVE VICE PRESIDENT AND CHIEF BANKING OFFICER
Scot R. Salvador
SENIOR VICE PRESIDENT
Nancy A. McNamara
AUDITOR
Daniel R. Saullo
ACCOUNTING/FINANCE
Vice Presidents
Richard M. Donovan
Michael M. Ozimek
BRANCH ADMINISTRATION/
MARKETING
Vice Presidents
Deborah K. Appel
Christopher L. Cox
Robert M. Leonard
Officers
Michael V. Pitnell
Mary Jean Riley
COMPLIANCE
Vice President
Thomas M. Poitras
COMMERCIAL LENDING
Senior Officer
Patrick M. Canavan
Officer
Paul R. Steenburgh
FACILITIES
Vice President
George W. Wickswat
MORTGAGE LOANS
Senior Officer
Michael J. Lofrumento
Officer
Robert O. Breton, Esq.
OPERATIONS
Vice President
Eric W. Schreck
PERSONNEL/QUALITY CONTROL
Vice President
Cheri J. Parvis
TRUST DEPARTMENT
Vice Presidents
Kevin M. Curley
Patrick J. LaPorta, Esq.
Officers
Richard W. Provost
Craig C. Chenevert
46
(LOGO)
TRUSTCO
Bank Corp NY
Branch Locations
Altamont Ave. Office
1400 Altamont Ave.
Schenectady, NY
Telephone: 356-1317
Altamont Ave. West Office
1900 Altamont Ave.
Rotterdam, NY
Telephone: 355-1900
Ballston Spa Office
235 Church Ave.
Ballston Spa, NY
Telephone: 885-1561
Bedford Hills Office
180 Harris Rd.
Bedford Hills, NY 10507
Telephone: (914) 666-6230
Bennington Office
215 North St.
Bennington, VT
Telephone: (802) 447-4952
Brandywine Office
State St. at Brandywine Ave.
Schenectady, NY
Telephone: 346-4295
Briarcliff Manor Office
64 Route 100
Briarcliff Manor, NY 10510
Telephone: (914) 762-7133
Canajoharie Office
211 Erie Blvd.
Canajoharie, NY
Telephone: 673-2012
Central Ave. Office
163 Central Ave.
Albany, NY
Telephone: 426-7291
Clifton Country Road Office
7 Clifton Country Rd.
Clifton Park, NY
Telephone: 371-5002
Clifton Park Office
1018 Route 146
Clifton Park, NY
Telephone: 371-8451
Cobleskill Office
RR #3, Rt. 7
Cobleskill, NY
Telephone: 254-0290
Colonial Drive Office
4450 East Colonial Dr.
Orlando, FL 32803
Telephone: (407) 895-6393
Colonie Office
1892 Central Ave.
Colonie Plaza, Colonie, NY
Telephone: 456-0041
Dean Road Office
3920 Dean Rd.
Orlando, FL 32817
Telephone: (407) 657-8001
Delmar Office
167 Delaware Ave.
Delmar, NY
Telephone: 439-9941
East Greenbush Office
501 Columbia Turnpike
Rensselaer, NY
Telephone: 479-7233
Elmsford Office
100 Clearbrook Rd.
Elmsford, NY
Telephone: (914) 345-1808
Exit 8/Crescent Rd. Office
CVS Plaza
Clifton Park, NY
Telephone: 383-0039
Fishkill Office
1542 Route 52
Fishkill, NY
Telephone: 896-8260
Freemans Bridge Rd. Office
Trustco Center
Glenville, NY
Telephone: 344-7510
Glens Falls Office
3 Warren Street
Glens Falls, NY
Telephone: 798-8131
Greenwich Office
131 Main St.
Greenwich, NY
Telephone: 692-2233
Guilderland Office
3900 Carman Rd.
Schenectady, NY
Telephone: 355-4890
Halfmoon Office
Country Dollar Plaza
Halfmoon, NY
Telephone: 371-0593
Hoosick Falls Office
47 Main St.
Hoosick Falls, NY
Telephone: 686-5352
Hudson Office
507 Warren St.
Hudson, NY
Telephone: 828-9434
Hudson Falls Office
3376 Burgoyne Ave.
Hudson Falls, NY
Telephone: 747-0886
Lake Mary Office
350 West Lake Mary Blvd.
Sanford, FL 32773
Telephone: (407) 330-7106
Latham Office
1 Johnson Rd.
Latham, NY
Telephone: 785-0761
Loudon Plaza Office
372 Northern Blvd.
Albany, NY
Telephone: 462-6668
Longwood Office
1400 West State Rd.
Longwood, FL
Telephone (407) 339-3396
Madison Ave. Office
1084 Madison Ave.
Albany, NY
Telephone: 489-4711
Malta 4 Corners Office
2471 Route 9
Malta, NY
Telephone: 899-1056
Malta Mall Office
43 Round Lake Rd.
Ballston Lake, NY
Telephone: 899-1558
Mayfair Office
286 Saratoga Rd.
Glenville, NY
Telephone: 399-9121
Mechanicville Office
9 Price Chopper Plaza
Mechanicville, NY
Telephone: 664-1059
Milton Office
2 Trieble Ave.
Ballston Spa, NY
Telephone: 885-0498
Mont Pleasant Office
Crane St. at Main Ave.
Schenectady, NY
Telephone: 346-1267
New Scotland Office
301 New Scotland Ave.
Albany, NY
Telephone: 438-7838
Newton Plaza Office
588 New Loudon Rd.
Latham, NY
Telephone: 786-3687
Niskayuna-Woodlawn Office
3461 State St.
Schenectady, NY
Telephone: 377-2264
Pomona Office
1581 Route 202
Pomona, NY
Telephone: 354-0176
Poughkeepsie Office
2656 South Rd.
(Route 9)
Poughkeepsie, NY
Telephone: 485-6419
Queensbury Office
118 Quaker Rd.
Suite 9, Queensbury, NY
Telephone: 798-7226
Rotterdam Office
Curry Road Shopping Ctr.
Rotterdam, NY
Telephone: 355-8330
Rotterdam Square Office
93 W. Campbell Rd.
Rotterdam, NY
Telephone: 377-2393
Route 2 Office -- Latham
201 Troy-Schenectady Rd.
Latham, NY
Telephone: 785-7155
Route 7 Office
1156 Troy-Schenectady Rd.
Latham, NY
Telephone: 785-4744
Saratoga Office
34 Congress St.
Saratoga Springs, NY12866
Telephone: 587-3500
Scotia Office
123 Mohawk Ave.
Scotia, NY
Telephone: 372-9416
Sheridan Plaza Office
1350 Gerling St.
Schenectady, NY
Telephone: 377-8517
Shoppers' World Office
Old Rte. 146 and Plank Rd.
Clifton Park, NY
Telephone: 383-6850
South Glens Falls Office
Glengate Shopping Plaza
133 Saratoga Road, Suite 1
South Glens Falls, NY
Telephone: 793-7668
State Farm Rd. Office
2050 Western Ave.
Guilderland, NY
Telephone: 452-6913
State St. Albany Office
112 State St.
Albany, NY
Telephone: 436-9043
State St. Schenectady Office
320 State St.
Schenectady, NY
Telephone: 377-3311
Stuyvesant Plaza Office
Western Ave. at Fuller Rd.
Albany, NY
Telephone: 489-2616
Tanners Main Office
345 Main St.
Catskill, NY
Telephone: 943-2500
Tanners West Side Office
238 West Bridge St.
Catskill, NY
Telephone: 943-5090
Troy Office
5th Ave. and State St.
Troy, NY
Telephone: 274-5420
Union Street East Office
1700 Union St.
Schenectady, NY
Telephone: 382-7511
Upper New Scotland Office
583 New Scotland Ave.
Albany, NY
Telephone: 438-6611
Upper Union Street Office
1620 Union St.
Schenectady, NY
Telephone: 374-4056
Ushers Road Office
308 Ushers Rd.
Ballston Lake, NY
Telephone: 877-8069
West Sand Lake Office
3707 NY Rt. 43
West Sand Lake, NY
Telephone: 674-3327
Wilton Mall Office
Route 50
Saratoga Springs, NY
Telephone: 583-1716
Wolf Road Office
34 Wolf Rd.
Albany, NY
Telephone: 458-7761
Wynantskill Office
134-136 Main St., Rt. 66
Wynantskill, NY
Telephone: 286-2674
47
(LOGO)
TRUSTCO
Bank Corp NY
General Information
ANNUAL MEETING
Monday, May 17, 2004
10:00 AM
Glen Sanders Mansion
1 Glen Avenue
Scotia, NY 12302
CORPORATE HEADQUARTERS
5 Sarnowski Drive
Glenville, NY 12302
(518) 377-3311
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan is available to shareholders of TrustCo Bank
Corp NY. It provides for the reinvestment of cash dividends and optional cash
payments to purchase additional shares of TrustCo stock. The Plan is free of
administrative charges, and provides a convenient method of acquiring
additional shares. Trustco Bank acts as administrator for this service, and
is the agent for shareholders in these transactions. Shareholders who want
additional information may contact the TrustCo Shareholder Services
Department at (518) 381-3601.
DIRECT DEPOSIT OF DIVIDENDS
Electronic deposit of dividends, which offers safety and convenience, is
available to TrustCo shareholders who wish to have dividends deposited
directly to personal checking, savings or other accounts. Electing direct
deposit will not affect the mailing of annual and quarterly reports and proxy
materials. If you would like to arrange direct deposit, please write the
TrustCo Shareholder Services Department at the corporate headquarters address
listed on this page.
DUPLICATE MAILING NOTIFICATION
If you are a shareholder of record and are currently receiving multiple
copies of TrustCo's annual and quarterly reports, please contact the TrustCo
Shareholder Services Department at (518) 381-3601, or at the corporate
headquarters address listed on this page.
EQUAL OPPORTUNITY AT TRUSTCO
Trustco Bank is an Affirmative Action Equal Opportunity Employer.
FORM 10-K
TrustCo Bank Corp NY will provide, without charge, a copy of its Form 10-K
upon written request. Requests and related inquiries should be directed to
Robert M. Leonard, Secretary, TrustCo Bank Corp NY, P.O. Box 380,
Schenectady, New York 12301-0380.
CODE OF CONDUCT
TrustCo Bank Corp NY will provide, without charge, a copy of its Code of
Conduct upon written request. Requests and related inquiries should be
directed to Cheri J. Parvis, Vice President-Personnel, TrustCo Bank Corp NY,
P.O. Box 1082, Schenectady, New York 12301-1082.
NASDAQ SYMBOL: TRST
The Corporation's common stock trades on The Nasdaq Stock Market(SM) under the
symbol TRST.
SUBSIDIARIES:
Trustco Bank ORE Subsidiary Corp.
Glenville, New York Schenectady, New York
Member FDIC
(and its wholly owned subsidiary,
Trustco Vermont Investment Company
Bennington, Vermont)
TRANSFER AGENT
Trustco Bank
Securities Department
P.O. Box 380
Schenectady, New York 12301-0380
Trustco Bank(R) is a registered service mark with the U.S. Patent &
Trademark Office.
48