UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number 0-10592
June 30, 2005
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes.(x) No.( )
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes (x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class of Common Stock as of August 1, 2005
--------------------------- ----------------------
$1 Par Value 75,046,820
TrustCo Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. Interim Financial Statements (Unaudited): Consolidated 1
Statements of Income for the Three Months and Six Months
Ended June 30, 2005 and 2004
Consolidated Statements of Financial Condition as of 2
June 30, 2005 and December 31, 2004
Consolidated Statements of Cash Flows for the Six Months 3 - 4
Ended June 30, 2005 and 2004
Notes to Consolidated Interim Financial Statements 5 - 11
Report of Independent Registered Public Accounting Firm 12
Item 2. Management's Discussion and Analysis of Financial 13 - 28
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
Item 4. Controls and Procedures 29 - 30
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Unregistered Sales of Equity Securities and Use 31
of Proceeds
Item 3. Defaults Upon Senior Securities 31
Item 4. Submissions of Matters to a Vote of Security Holders 31 - 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 33
TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)
3 Months Ended 6 Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
Interest and dividend income:
Interest and fees on loans $ 20,988 18,429 40,970 37,210
Interest on U. S. Treasuries and agencies 8,462 9,892 15,339 20,727
Interest on states and
political subdivisions 1,634 2,180 3,489 4,511
Interest on mortgage-backed securities and collateralized
mortgage obligations 2,468 657 4,701 1,537
Interest and dividends on other securities 267 1,741 402 2,129
Interest on federal funds sold and other short term investments 3,197 1,206 7,000 2,400
------------------------------------------------
Total interest income 37,016 34,105 71,901 68,514
------------------------------------------------
Interest expense:
Interest on deposits:
Interest-bearing checking 380 395 767 785
Savings 1,493 1,982 3,207 3,905
Money market deposit accounts 571 379 1,011 828
Time deposits 7,443 6,480 14,532 12,883
Interest on short-term borrowings 419 201 813 379
Interest on long-term debt 2 2 3 5
------------------------------------------------
Total interest expense 10,308 9,439 20,333 18,785
------------------------------------------------
Net interest income 26,708 24,666 51,568 49,729
Provision (credit) for loan losses (1,580) 150 (3,080) 300
------------------------------------------------
Net interest income after provision
for loan losses 28,288 24,516 54,648 49,429
------------------------------------------------
Noninterest income:
Trust department income 1,555 1,532 2,956 2,999
Fees for other services to customers 2,780 2,814 5,091 5,295
Net gain on securities transactions 1,255 3,588 4,907 7,774
Other 1,310 441 2,084 1,028
------------------------------------------------
Total noninterest income 6,900 8,375 15,038 17,096
------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 5,037 5,185 10,294 10,462
Net occupancy expense 1,905 1,580 3,755 3,504
Equipment expense 744 487 1,391 940
Professional services 980 953 1,776 1,757
Outsourced Services 843 1,054 2,028 2,177
Other real estate expenses / (income) (62) (76) (394) (221)
Other 2,776 2,516 5,103 5,588
------------------------------------------------
Total noninterest expenses 12,223 11,699 23,953 24,207
------------------------------------------------
Income before taxes 22,965 21,192 45,733 42,318
Income taxes 7,980 6,821 15,841 13,814
------------------------------------------------
Net income $ 14,985 14,371 29,892 28,504
================================================
Net income per Common Share:
- Basic $ 0.200 0.193 0.399 0.384
================================================
- Diluted $ 0.199 0.191 0.396 0.380
================================================
See accompanying notes to unaudited consolidated interim financial
statements.
1
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition (Unaudited)
(dollars in thousands, except per share data)
06/30/05 12/31/04
ASSETS:
Cash and due from banks $ 50,242 54,222
Federal funds sold and other short term investments 336,002 642,208
------------- ------------
Total cash and cash equivalents 386,244 696,430
Securities available for sale:
U. S. Treasuries and agencies 757,476 517,561
States and political subdivisions 128,042 154,939
Mortgage-backed securities and collateralized mortgage 229,764 201,623
obligations
Other 17,809 21,866
------------- ------------
Total securities available for sale 1,133,091 895,989
------------- ------------
Loans:
Commercial 202,452 201,742
Residential mortgage loans 925,607 833,697
Home equity line of credit 193,347 191,242
Installment loans 12,989 13,749
------------- ------------
Total loans 1,334,395 1,240,430
------------- ------------
Less:
Allowance for loan losses 48,021 49,384
Unearned income 388 365
------------- ------------
Net loans 1,285,986 1,190,681
Bank premises and equipment 21,135 22,479
Other assets 52,331 58,255
------------- ------------
Total assets $ 2,878,787 2,863,834
============= ============
LIABILITIES:
Deposits:
Demand $ 231,700 237,423
Interest-bearing checking 320,357 336,538
Savings accounts 797,152 820,593
Money market deposit accounts 146,823 155,299
Certificates of deposit (in denominations of
$100,000 or more) 189,781 178,021
Time deposits 802,033 799,228
------------- ------------
Total deposits 2,487,846 2,527,102
Short-term borrowings 84,404 77,979
Long-term debt 100 114
Due to broker 40,607 -
Accrued expenses and other liabilities 31,602 32,807
------------- ------------
Total liabilities 2,644,559 2,638,002
------------- ------------
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 shares authorized,
and 82,119,360 and 81,727,754 shares issued June 30, 2005
and December 31, 2004, respectively 82,120 81,728
Surplus 116,232 114,218
Undivided profits 97,403 90,018
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale 4,327 4,459
Treasury stock at cost - 7,223,057 and 7,187,784 shares at
June 30, 2005 and December 31, 2004, respectively (65,854) (64,591)
------------- ------------
Total shareholders' equity 234,228 225,832
------------- ------------
Total liabilities and shareholders' equity $ 2,878,787 2,863,834
============= ============
See accompanying notes to unaudited consolidated interim financial statements.
2
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED June 30, 2005 2004
---- ----
Cash flows from operating activities:
Net income.............................................. 29,892 28,504
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,285 943
Gain on sale of other real estate owned.......................... (446) (303)
(Credit) provision for loan losses................................ (3,080) 300
Deferred tax expense................................... 3,404 1,264
(Gain) loss on sale of premises and equipment.......................... (595) 55
Net gain on sale of securities available for sale.................. (4,907) (7,774)
Decrease/(increase) in taxes receivable........................... 9,784 (8,969)
(Increase)/decrease in interest receivable........................... (1,858) 481
Increase/(decrease) in interest payable........................... 10 (191)
(Increase)/decrease in other assets..................... (5,308) 16,573
Decrease in accrued expenses and other liabilities........................... (1,302) (6,725)
---------------------
Total adjustments.................................... (3,013) (4,346)
---------------------
Net cash provided by operating activities................ 26,879 24,158
---------------------
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale.......... 165,194 836,549
Purchase of securities available for sale................... (357,606) (803,126)
Proceeds from maturities of securities available for sale................... 594 561
Net increase in loans.................................. (92,225) (4,836)
Proceeds from dispositions of real estate owned........ 446 303
Proceeds from dispositions of bank premises and equipment........ 2,226 23
Purchases of bank premises and equipment................................... (1,572) (944)
---------------------
Net cash (used in)/provided by investing activities................ (282,943) 28,530
---------------------
Cash flows from financing activities:
Net (decrease)/increase in deposits............................... (39,256) 74,186
Increase in short-term borrowings........................ 6,425 16,048
Repayment of long-term debt............................ (14) (98)
Proceeds from exercise of stock options................ 2,324 5,270
Proceeds from sale of treasury stock................... 6,139 3,893
Purchase of treasury stock............................. (7,320) (10,434)
Dividends paid......................................... (22,420) (22,227)
---------------------
Net cash (used in)/provided by financing activities................ (54,122) 66,638
---------------------
Net (decrease)/increase in cash and cash equivalents................ (310,186) 119,326
Cash and cash equivalents at beginning of period............ 696,430 411,682
--------------------
Cash and cash equivalents at end of period.............. 386,244 531,008
=====================
See accompanying notes to unaudited consolidated interim financial statements.
(Continued)
3
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
SIX MONTHS ENDED June 30,
2005 2004
---- ----
Interest paid........................................ 20,323 18,976
Increase in due to broker, net....................... 40,607 -
Income taxes paid.................................... 4,469 3,384
Transfer of loans to real estate owned............... - -
Increase in dividends payable........................ 87 31
Change in unrealized gain on securities
available for sale-gross of deferred taxes.......... (229) (28,450)
Change in deferred tax effect on unrealized gain
on securities available for sale.................... 98 11,332
See accompanying notes to unaudited consolidated interim financial statements.
4
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements
(Unaudited)
1. Financial Statement Presentation
The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp
NY (the Company) include the accounts of the subsidiaries after elimination
of all significant intercompany accounts and transactions.
In the opinion of the management of the Company, the accompanying unaudited
Consolidated Interim Financial Statements contain all adjustments necessary to
present fairly the financial position as of June 30, 2005, the results of
operations for the three months and six months ended June 30, 2005 and 2004,
and cash flows for the six months ended June 30, 2005 and 2004. The
accompanying Consolidated Interim Financial Statements should be read in
conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial
Statements, including notes thereto, which are included in TrustCo Bank Corp
NY's 2004 Annual Report to Shareholders on Form 10K.
2. Earnings Per Share
A reconciliation of the component parts of earnings per share for the three
and six month periods ended June 30, 2005 and 2004 follows:
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
------------ -------------- ------------
For the quarter ended
June 30, 2005:
Basic EPS:
Net income available to
Common shareholders $14,985 75,056 $0.200
Effect of Dilutive Securities:
Stock options ------ 313 (.001)
------------ -------------- ------------
Diluted EPS $14,985 75,369 $0.199
============ ============== ============
For six months ended
June 30, 2005:
Basic EPS:
Net income available to
Common shareholders $29,892 74,972 $0.399
Effect of Dilutive Securities:
Stock options ------- 457 (.003)
------------ -------------- ------------
Diluted EPS $29,892 75,429 $0.396
============ ============== ============
There were 667,900 stock options which, if included, would have been
antidilutive in the calculation of average shares outstanding as of June 30,
2005 and were therefore excluded from the earnings per share calculations.
5
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
---------- --------------- -----------
For the quarter ended
June 30, 2004:
Basic EPS:
Net income available to
Common shareholders $14,371 74,354 $0.193
Effect of Dilutive Securities:
Stock options ------ 741 (0.002)
---------- --------------- ------------
Diluted EPS $14,371 75,095 $0.191
========== =============== ============
For six months ended
June 30, 2004:
Basic EPS:
Net income available to
Common shareholders $28,504 74,241 $0.384
Effect of Dilutive Securities:
Stock options ------- 844 (0.004)
---------- --------------- ------------
Diluted EPS $28,504 75,085 $0.380
========== =============== ============
There were no antidilutive stock options as of June 30, 2004.
3. 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). 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 because the exercise price is equal
to the fair market value on the date of grant. 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 for the periods ended
June 30, 2005 and 2004 would have been as follows:
6
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
(dollars in thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------------------- -------------------
Net income:
As reported $14,985 14,371 29,892 28,504
Deduct: total stock-based
compensation expense
determined under fair
value based method
for all awards, net of
related tax effects (191) (165) (382) (331)
-------------------- -------------------
Pro forma net income $14,794 14,206 29,510 28,173
====== ===== ====== =====
Earnings per share:
Basic - as reported $ .200 .193 .399 .384
Basic - pro forma .197 .191 .394 .379
Diluted - as reported .199 .191 .396 .380
Diluted - pro forma .196 .189 .391 .375
The weighted average fair value of each option as of the grant date was
estimated using the Black-Scholes pricing model, and calculated in accordance
with Statement 123.
7
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
4. Comprehensive Income
Comprehensive income includes the reported net income of a company adjusted
for items that are accounted for as direct entries to equity, such as the mark
to market adjustment on securities available for sale, foreign currency items,
minimum pension liability adjustments, and certain derivative gains and losses.
At the Company, 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. 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.
Comprehensive income (loss) for the three month periods ended June 30, 2005 and
2004 was $21,046,000 and $(6,720,000), respectively, and $29,760,000 and
$11,386,000 for the six month periods ended June 30, 2005 and 2004,
respectively The following summarizes the components of other comprehensive
income (loss):
(dollars in thousands)
Three months ended June 30
2005 2004
-----------------------------
Unrealized holding gains (losses) arising during period, net of tax (pre-tax
gain of $11,328 for 2005 and pre-tax
loss of $31,471 for 2004) $6,816 (18,933)
Reclassification adjustment for net gain realized in net
income during the period, net of tax (pre-tax gains of $1,255
for 2005 and $3,588 for 2004) (755) (2,158)
------------------------------
Other comprehensive income (loss) $6,061 (21,091)
================================
(dollars in thousands)
Six months ended June 30
2005 2004
-------------------------------
Unrealized holding gains (losses) arising during period, net of tax (pre-tax
gain of $4,678 for 2005 and pre-tax loss of
$20,676 for 2004) $2,820 (12,442)
Reclassification adjustment for net gain realized in net
income during the period, net of tax (pre-tax gains of $4,907
for 2005 and $7,774 for 2004) (2,952) (4,676)
------------------------------
Other comprehensive loss $(132) (17,118)
================================
8
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
5. Benefit Plans
The table below outlines the component's of the Company's net periodic expense
(benefit) recognized during the three and six month periods ended June 30, 2005
and 2004 for its pension and other postretirement benefit plans:
Components of Net Periodic Expense/(Benefit) for the three months ended
June 30,
Pension Benefits Other Postretirement Benefits
2005 2004 2005 2004
----------------------- --------------------------------
Service cost $ 194 216 13 1
Interest cost 371 410 23 8
Expected return on plan assets (440) (348) (101) (58)
Amortization of prior service cost 26 38 (134) (114)
------------------------ ---------------------------------
Net periodic expense/(benefit) $ 151 316 (199) (163)
======================== =================================
Components of Net Periodic Expense/(Benefit) for the six months ended June 30,
Pension Benefits Other Postretirement Benefits
2005 2004 2005 2004
----------------------- ---------------------------------
Service cost $ 402 432 19 2
Interest cost 759 820 36 16
Expected return on plan assets (903) (859) (202) (247)
Amortization of prior service cost 53 76 (259) (228)
------------------------ ----------------------------------
Net periodic expense/(benefit) $ 311 469 (406) (457)
======================== ===================================
Contributions
The Company previously disclosed in its consolidated financial statements for
the year ended December 31, 2004, that it did not expect to make any
contributions to its pension and postretirement benefit plans in 2005. As of
June 30, 2005, no contributions have been made. The Company presently
anticipates that it will not make any contributions in 2005.
9
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited) continued
6. Impact of Changes in Accounting Standards
In December 2003, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 03-3, "Accounting for Certain Loans or
Debt Securities Acquired in a Transfer." The SOP is effective for loans
acquired in fiscal years beginning after December 15, 2004. The SOP addresses
accounting for differences between contractual cash flows and cash flows
expected to be collected from an investor's initial investment in loans or
debt securities (loans) acquired in a transfer if those differences are
attributable, at least in part, to credit quality. The SOP applies to loans
acquired in business combinations but does not apply to originated loans.
During the first quarter of 2005, the Company implemented the provisions of
this SOP. This implementation did not have a material impact on the Company's
financial condition or results of operations.
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. The Company's disclosures
in Note 10 to the year-end audited consolidated financial statements
incorporate the requirements of the revised Statement 132.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("the Act") became law in the United States. The Act introduced 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 Medicare Part D under the Act. In accordance
with FASB Staff Position FAS 106-2, "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. The Company is still
analyzing the specific authoritative guidance on the accounting for the federal
subsidy, which was issued in January 2005, but the Company anticipates that, in
order to make the plan actuarially equivalent, it will make minor changes to
its non-pension postretirement plan. Accordingly, the measures of the
accumulated non-pension postretirement benefit obligation and net periodic
non-pension postretirement benefit cost do not reflect any amount associated
with the subsidy.
In December 2004, the FASB issued revised statement No. 123 ("FAS 123R"),
"Share-Based Payment," which requires companies to expense the estimated
grant-date fair value of employee stock options and similar awards. In April
2005, the effective date of the accounting provisions of FAS 123R were delayed
from July 1, 2005 to January 2006 for public companies like TrustCo. The
Company will adopt the provisions of FAS 123R using a modified prospective
application. Under modified prospective application, FAS 123R will apply to new
awards and to awards that are outstanding on the effective date and are
subsequently modified or cancelled. Compensation expense for outstanding
10
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements (unaudited continued
awards for which the requisite service had not been rendered as of the
effective date will be recognized over the remaining service period using the
compensation cost calculated for pro forma disclosure purposes under FAS 123.
The Company will incur additional expense beginning in the first quarter of
2006 related to new awards granted and the unvested portions of earlier awards.
The Company is in the process of determining the impact the recognition of
compensation expense related to stock awards will have on its consolidated
financial statements.
7. Guarantees
The Company does not issue any guarantees that would require
liability-recognition or disclosure, other than its standby letters of credit.
Standby letters of credit are conditional commitments issued by the Company to
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 $3.4 million at June 30, 2005 and
represent the maximum potential future payments the Company could be required
to make. Typically, these instruments have terms of twelve 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 June 30, 2005 was
insignificant.
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have reviewed the consolidated statement of financial condition of TrustCo
Bank Corp NY and subsidiaries (the Company) as of June 30, 2005, the related
consolidated statements of income for the three and six month periods ended
June 30, 2005 and 2004 and the related consolidated statements of cash flows
for the six month periods ended June 30, 2005 and 2004. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated statement
of financial condition of TrustCo Bank Corp NY and subsidiaries as of December
31, 2004, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 8, 2005, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated statement of financial
condition as of December 31, 2004 is fairly stated, in all material respects,
in relation to the consolidated statement of financial condition from which it
has been derived.
/s/KPMG LLP
- ---------------------
KPMG LLP
Albany, New York
August 5, 2005
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The review that follows focuses on the factors affecting the financial
condition and results of operations of TrustCo Bank Corp NY ("TrustCo" or
"Company") during the three month and six month periods ended June 30, 2005,
with comparisons to 2004 as applicable. Net interest income and net interest
margin are presented on a fully taxable equivalent basis in this discussion.
The consolidated interim financial statements and related notes, as well as the
2004 Annual Report to Shareholders should be read in conjunction with this
review. Amounts in prior period consolidated interim financial statements are
reclassified whenever necessary to conform to the current period's
presentation.
Forward-looking Statements
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which
are not historical or current facts, are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, and are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. TrustCo wishes to caution readers
not to place undue reliance on any such forward-looking statements, which
speak only as of the date made. The following important factors, among others,
in some cases have affected and in the future could affect TrustCo's actual
results, and could cause TrustCo's actual financial performance to differ
materially from that expressed in any forward-looking statement:
(1) credit risk, (2) interest rate risk, (3)competition, (4) changes in the
regulatory environment, and (5) changes in general business and economic
trends. The foregoing list should not be construed as exhaustive, and the
Company disclaims any obligation to subsequently revise any forward-looking
statements to reflect events or circumstances after the date of such
statements, or to reflect the occurrence of anticipated or unanticipated
events.
Following this discussion is the table "Distribution of Assets, Liabilities and
Shareholders' Equity: Interest Rates and Interest Differential" which gives a
detailed breakdown of TrustCo's average interest earning assets and interest
bearing liabilities for the three months and six months ended June 30, 2005 and
2004.
Overview
TrustCo recorded net income of $15.0 million, or $0.199 of diluted earnings per
share for the three months ended June 30, 2005, as compared to net income of
$14.4 million or $0.191 of diluted earnings per share in the same period in
2004. For the six month period ended June 30, 2005, TrustCo recorded net income
of $29.9 million, or $0.396 of diluted earnings per share, as compared to $28.5
million, or $0.380 of diluted earnings per share for the comparable period in
2004.
13
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30,2005
The primary factors accounting for the year to date changes were:
- A $55.1 million increase in the average balance of interest
earning assets from $2.71 billion for the six-month period ended
June 30, 2004 to $2.76 billion for the six-month period ended
June 30, 2005,
- A reduction in the provision for loan losses from $300 thousand
expense in 2004 to $3.1 million credit in 2005,
- A decrease in total noninterest income from $17.1 million in
2004 to $15.0 million in 2005. Within this category, securities
transactions resulted in $7.8 million of net gains in 2004
compared to $4.9 million in 2005, and,
- A reduction in total noninterest expense from $24.2 million
for the six months ended June 30, 2004 to $24.0 million for the
comparable period in 2005.
Asset/Liability Management
The Company strives to generate its earnings capabilities through a mix of core
deposits, funding a prudent mix of earning assets. Additionally, TrustCo
attempts to maintain adequate liquidity and reduce the sensitivity of net
interest income to changes in interest rates to an acceptable level while
enhancing profitability both on a short-term and long-term basis.
The following Management's Discussion and Analysis for the second quarter and
first six months of 2005 compared to the comparable period in 2004 is greatly
affected by the change in interest rates in the marketplace in which TrustCo
competes. Included in the 2004 Annual Report to Shareholders is a description
of the effect interest rates had on the results for the year 2004 compared to
2003. Most of the same market factors discussed in the 2004 Annual Report also
had a significant impact on the quarterly and year to date 2005 results.
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 period.
One of the most important interest rates used to control national economic
policy is the "federal funds" rate. This is the interest rate utilized for
institutions with the highest credit quality rating. The federal funds rate
increased by 100 basis points during the first six months of 2005 from 2.25% at
the beginning of the year to 3.25% by June 30, 2005. For 2004 the federal funds
rate was 1.00% at the beginning of that year and remained at that level during
the first half of 2004. During the first half of 2005 the 10 year treasury bond
did not change consistently with the increase in the federal funds rate. The 10
year treasury was 4.22% as of year end 2004 and decreased to 3.91% by
14
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
the end of the second quarter of 2005. For comparison purposes the 10 year
treasury was 4.25% at the beginning of 2004 and ended the second quarter up 33
basis points to 4.58%. The Federal Reserve has indicated its intention to
continue to monitor economic expansion in the United States economy which may
require additional increases in the federal funds rate subsequent to June 30,
2005.
These changes in interest rates have an effect on the Company relative to the
interest income on loans, securities and federal funds sold as well as on
interest expense on deposits and borrowings. Residential real estate loans and
longer-term investments are most affected by the changes in longer term market
interest rates such as the 10 year treasury. The federal funds sold portfolio
and other short term investments are affected primarily by changes in the
federal funds target rate. Deposit interest rates are most affected by short
term market interest rates. Also, changes in interest rates have an effect on
the recorded balance of the securities available for sale portfolio, which is
recorded at market value. Generally as interest rates increase the market value
of the securities available for sale portfolio will decrease.
The principal loan product for TrustCo is residential real estate loans.
Interest rates on new residential real estate loan originations are influenced
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 loans
into the secondary market, the Company establishes rates that management
determines are appropriate in relation to the long-term nature of a residential
real estate loan, while remaining competitive with the secondary market rates.
For the second quarter of 2005 the net interest margin increased to 3.98% from
3.78% for the second quarter of 2004. The quarterly results reflect the
following significant factors:
- - The average balance of securities available for sale decreased by $65.9
million and the average yield decreased to 5.35%.
- - The average balance of federal funds sold and other short term investments
decreased by $49.7 million and the average yield increased 189 basis points
to 2.87%. The increase in yield on federal funds sold and other short-term
investments is attributable to the increase in the target federal funds
rate during these time periods.
- - The loan portfolio grew by $137.1 million to $1.30 billion and the average
yield increased 12 basis points to 6.47%.
- - The average balance of interest bearing liabilities (primarily deposit
accounts) decreased $28.8 million and the average yield increased 17 basis
points to 1.76%.
These changes resulted in a net interest margin increase of 20 basis points
from 3.78% for the second quarter of 2004 to 3.98% for the comparable period
in 2005.
During the second quarter of 2005 the Company's strategy was to expand the loan
portfolio by offering competitive interest rates as the rate environment began
to
15
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
increase. The TrustCo residential real estate loan product is very competitive
compared to local and national competitors.
The strategy on the funding side of the balance sheet continues to be to
attract customers to the Company based upon a combination of service,
convenience and interest rate. The Company offered attractive long-term deposit
rates as part of a strategy to lengthen deposit lives. This strategy has been
successful but has also resulted in part of the increase in the deposit costs.
The decrease in balances of total interest bearing liabilities is primarily on
the short term borrowing category which decreased by $30.6 million between the
second quarter of 2004 and 2005.
Earning Assets
The total average balance of interest earning assets increased from $2.75
billion for the second quarter of 2004 to $2.77 billion for the second quarter
of 2005 with an average yield of 5.16% in 2004 and 5.48% in 2005. Income on
earning assets increased during this same time-period from $35.5 million in
2004 to $37.9 million in 2005.
For the six month period ended June 30, 2005, the average balance of interest
earning assets was $2.76 billion, an increase of $55.1 million from the
comparable period in 2004 of $2.71 billion. The average yield on interest
earning assets was 5.27% for 2004, compared to 5.35% in 2005. The increase in
the average balance of earning assets and the increase in the yield earned on
these assets, resulted in an increase in interest income of $2.5 million to
$73.8 million for the six months of 2005, compared to $71.2 million for the six
months to 2004.
Loans
The average balance of loans for the second quarter was $1.30 billion in 2005
and $1.16 billion in 2004. The yield on loans increased from 6.35% in 2004 to
6.47% in 2005. The combination of the increased average balances and the higher
rates resulted in an increase in the interest income on loans by $2.6 million.
For the six-month period ended June 30, 2005, the average balance in the loan
portfolio was $1.28 billion compared to $1.16 billion for the comparable period
in 2004. The average yield increased from 6.41% in 2004 to 6.44% in 2005. The
increase in the average balance of loans outstanding and the impact of the
increase in the yield resulted in total interest income of $41.0 million in
2005 compared to $37.2 million in 2004.
TrustCo actively markets the residential loan products (which includes
residential real estate and home equity credit loans) within its market
territory. Mortgage loan rates are affected by a number of factors including
the prime rate, the federal funds rate, rates set by competitors and secondary
market participants. As noted earlier, market interest rates have changed
significantly as a result of national economic policy in the United States.
During this period of changing interest rates TrustCo aggressively marketed the
16
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
unique aspects of its loan products thereby attempting to create a
differentiation from other lenders. These unique aspects include extremely low
closing costs, fast turn around time on loan approvals, no escrow or mortgage
insurance requirements and the fact that the Company holds these loans in
portfolio and does not sell them into the secondary markets.
Though there is debate among nationally recognized economists, the general
tenor of the national economy is for improvement and increases in interest
rates. Consequently, the significant amount of refinancing that occurred during
2003 and 2004 has been completed with only residual effects into 2005.
Assuming a rise in long-term interest rates, the Company would anticipate that
the unique features of its loan product attract customers in the residential
mortgage loan area.
The impact of the increase in the benchmark interest rate indices (prime rate,
federal funds, etc.) is apparent in the change in the yield earned in the
commercial and home equity loan portfolios. The yields earned for the first six
months of 2005 were 25 basis points, and 170 basis points, respectively,
greater than in the first six months of 2004.
The average balance of commercial loans increased from $193.1 million for the
second quarter of 2004 to $201.5 million in 2005. Similar increases were noted
for the six month results where the average balance increased from $192.8
million in 2004 to $199.7 million in 2005. These increases are reflective of
the market levels of economic activity occurring in the Upstate New York region
and the movement of certain customer relations as a result of recent bank
mergers in the region.
Securities Available for Sale
During the second quarter of 2005, the average balance of securities available
for sale was $1.02 billion with a yield of 5.35%, compared to $1.09 billion for
the second quarter of 2004 with a yield of 5.80%. The combination of the
decrease in average balance and the decrease in the average yield caused a
decrease in interest income on securities available for sale of approximately
$2.1 million between the second quarter of 2005 and 2004.
The six-month results reflect similar trends. The total average balance of
securities available for sale during the six months of 2004 was $1.06 billion
with an average yield of 5.97% compared to an average balance for 2005 of
$949.9 million with a yield of 5.43%.
Within the portfolio of securities available for sale there was a $61.2
million decrease in the average balance of US Treasury and agency obligations
from $725.4 million in the second quarter of 2004 to $664.2 million for the
comparable period in 2005. Likewise, for the six months ended June 30, 2005 the
average balance of US Treasury and agency obligations was $591.4 million
compared to $735.5 million in 2004. The decreases during the quarter and on a
year to date basis reflect the redeployment of funds from fixed term final
payment obligations to securities and loans that provide cash flow over their
lives. US Treasury and agency obligation securities have fixed term
17
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
maturities and call dates established at the time that the security is
purchased. The decision was made to reinvest proceeds of funds coming from
maturities and calls of these securities into new investments and loans that
would provide cash flow over the life of the instrument. This decision would
allow TrustCo to reinvest these cash flows as they are received in new
securities that would reflect current interest rates at the time of the
reinvestment. As noted earlier, the general tenor and recent Federal Open
Market Committee ("FOMC") actions, support a presumption that interest rates
may be increasing.
Mortgage backed securities and collateralized mortgage obligations increased
during the second quarter from $49.9 million in 2004 to $213.9 million in 2005.
The average balance for the six-month periods was $59.2 million in 2004 and
$204.5 million in 2005. This increase in the average balance reflects the
decision by management to invest in securities with cash flows over the life of
the security. The purchases are a combination of pass through mortgage backed
securities along with collateralized mortgage obligations. Consequently the
average yield on these securities has decreased from 5.26% in the second
quarter of 2004 to 4.61% for 2005, and the six month yields are 5.19% in 2004
and 4.60% in 2005.
Consistent with the discussion above with respect to US Treasury and agency
obligations the average balance of State, County and Municipal obligations has
decreased during the second quarter from $169.1 million in 2004 to $130.5
million in 2005. The six month results also reflect a decrease from $174.8
million in 2004 to $138.7 million in 2005. As securities have matured or been
sold the proceeds have primarily been reinvested in securities that provide
principal cash flows to maturity. The sales of these securities has been to
allow the Company to recognize gains along with providing additional cash flow
for reinvestment.
Federal Funds Sold and Other Short-term Investments
During the second quarter of 2005 the average balance of federal funds sold and
other short-term investments was $446.5 million with a yield of 2.87%, compared
to the average balance for the three month period ended June 30, 2004 of $496.2
million with an average yield of 0.98%. The $49.7 million decrease in the
average balance, offset by the 189 basis points increase in the average yield,
resulted in total interest income on federal funds sold and other short-term
investments of $3.2 million for 2005 compared to $1.2 million for 2004.
During the six-month period ended June 30, 2005, the average balance of federal
funds sold and other short-term investments was $537.4 million with a yield of
2.63% compared to an average balance of $486.1 million in 2004 with an average
yield of 0.99%.
Changes in the yield on the federal funds and other short-term investment
portfolios resulted primarily from changes in the target rate set of the
Federal Reserve Board for federal funds sold. The federal funds sold and other
short-term investments portfolio is utilized to generate additional interest
income and liquidity as funds are waiting to be deployed into the loan and
securities portfolio.
18
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30,2005
Funding Opportunities
TrustCo utilizes various funding sources to support its earning asset
portfolio. The vast majority of the Company's funding comes from traditional
deposit vehicles such as savings, interest-bearing checking and time deposit
accounts.
During the second quarter, total average interest bearing liabilities were
$2.35 billion for 2005 and $2.38 billion for 2004. The rate paid on total
interest bearing liabilities was 1.59% for the second quarter of 2004 and 1.76%
for 2005. Total interest expense for the second quarter increased approximately
$870 thousand to $10.3 million for 2005 compared to $9.4 million for 2004.
Total interest-bearing liabilities were $2.36 billion for the six-month periods
ended June 30, 2005 and $2.35 billion for 2004. The rate paid on total interest
bearing liabilities was 1.60% for 2004 and 1.74% for 2005 and total interest
expense was $18.8 million in 2004 and $20.3 million in 2005.
Demand deposit average balances increased $24.5 million for the second quarter
of 2005 compared to the second quarter of 2004. Demand deposits averaged $233.1
million in the second quarter of 2005 and $208.6 million in 2004. On a year to
date basis, average demand deposits were $229.8 million in 2005 compared to
$201.8 million in 2004.
Interest bearing deposit balances have increased from an average of $2.25
billion for the first six months of 2004 to $2.28 billion for 2005. The
increase in overall deposits noted for the six months of 2005 compared to 2004
were the result of increases in the savings category of $16.3 million and
Certificates of deposit and other time deposits of $34.6 million offset by
reductions in interest bearing checking accounts of $3.6 million and money
market accounts of $19.8 million. Similar trends were also noted for the second
quarter results with the exception of savings accounts which had a decrease
of $1.2 million between the second quarter of 2004 and 2005. TrustCo has
experienced a deposit inflow primarily as a result of customers moving funds
back into the banking system from the stock and bond market and from TrustCo's
new branch openings.
Short-term borrowings for the quarter averaged $81.5 million in 2005 compared
to $112.1 million in 2004. The average yield increased during this time period
from 0.72% to 2.06% for the second quarter of 2005. On a year to date basis,
short term borrowings averaged $105.9 million for the six months ended
June 30, 2004 compared to $82.0 million for the comparable period in 2005.
The average yield was 0.72% for the six months of 2004 and 2.00% for 2005.
Net Interest Income
Taxable equivalent net interest income increased by $1.6 million to $27.6
million for the second quarter of 2005. The net interest spread increased 15
basis points between 2004 and 2005 and the net interest margin increased by 20
basis points.
Taxable equivalent net interest income for the first six months of 2005 was
$53.5
19
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
million, an increase of approximately $1.0 million over the $52.5 million for
the first six months of 2004. Net interest spread decreased 6 basis points to
3.61% and net interest margin remained the same at 3.87% for the six-month
period ended June 30, 2005.
Nonperforming Assets
Nonperforming assets include nonperforming loans which are those loans in a
nonaccrual status, loans that have been restructured, and loans past due 90
days or more and still accruing interest. Also included in the total of
nonperforming assets are foreclosed real estate properties, which are
categorized as real estate owned.
Impaired loans are considered to be those commercial and commercial real estate
loans in a nonaccrual status and loans restructured since January 1, 1995, when
the accounting standards required the identification, measurement and reporting
of impaired loans. The following describes the nonperforming assets of TrustCo
as of June 30, 2005.
Nonperforming loans: Total nonperforming loans were $3.0 million at June 30,
2005, an increase from the $2.9 million of nonperforming loans at June 30,
2004. There were $1.0 million of nonaccrual loans at June 30, 2005 and none at
June 30, 2004. Restructured loans were $2.0 million at June 30, 2005 compared
to $2.9 million at June 30, 2004. There were no loans past due three payments
or more and still accruing interest at June 30, 2005 and 2004.
All of the nonperforming loans at June 30, 2005 and 2004 are residential real
estate or retail consumer loans. Since 2000, there has been a continued
shifting in the components of TrustCo's problem loans and chargeoffs from
commercial and commercial real estate to the residential real estate and
retail consumer loan portfolios. Contributing factors to this shift include:
- The overall emphasis within TrustCo for residential real estate
originations,
- The relatively weak economic environment in the upstate
New York territory, and
- The relative slow growth in real estate values in many of
TrustCo's market area that has occurred since the middle of the
1990's, thereby limiting the collateral value that supports the
real estate loans.
Consumer loan defaults and bankruptcies have increased 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 with them so as to minimize losses or exposures. However,
beginning in 2004 the number of new bankruptcy filings in the Capital District
area decreased from the prior year. Also the demand for housing in the Capital
District area has increased which has resulted in increased real estate prices
in selected sectors of the marketplace. These trends may be indicators of
future economic stability for this region and a continued lessening of
loan chargeoffs.
20
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
Total impaired loans at June 30, 2005 of $2.0 million, consisted of
restructured retail loans. During the first six months of 2005, there were
$379.4 thousand of commercial
loan charge offs, $158.8 thousand of consumer loan charge offs and $649.7
thousand of residential mortgage loan charge offs as compared with $61 thousand
of commercial loan charge offs, $192 thousand of consumer loan charge offs and
$3.3 million of residential mortgage loan charge offs in the first half of
2005. Recoveries during the first six months were $2.9 million in 2005 and
$2.8 million in 2004.
The significant reduction in the loan charge offs from the residential real
estate portfolio, along with ancillary information previously noted of the
increased real estate prices and reduction in financial stress as demonstrated
by bankruptcy filings resulted in a negative provision for loan losses of $1.6
million during the second quarter of 2005 compared to $150 thousand expense
for the comparable period in 2004. The negative provision was $3.1 for the
first six months of 2005 compared to a provision for loan losses of $300
thousand for the comparable period in 2004. The Company continues to monitor
these trends and believes they have continued into the second half of 2005.
Real estate owned: There was no real estate owned as of June 30, 2005 and 2004.
Allowance for loan losses: The balance of the allowance for loan losses is
maintained at a level that is, in management's judgment, representative of the
amount of risk inherent in the loan portfolio.
At June 30, 2005, the allowance for loan losses was $48.0 million, which
represents a decrease from the $49.4 million in the allowance at December 31,
2004. The allowance represents 3.60% of the loan portfolio as of June 30, 2005
compared to 4.14% at June 30, 2004.
In deciding on the adequacy of the allowance for loan losses, management
reviews the current nonperforming loan portfolio as well as loans that are
past due and not yet categorized as nonperforming for reporting purposes.
Also, there are a number of other factors that are taken into consideration,
including:
- The magnitude and nature of the recent loan charge offs,
- The change in the loan portfolio and the implication that it has
in relation to the economic climate in the bank's business
territory,
- Significant growth in the level of losses associated with
bankruptcies in New York State and the time period needed to
foreclose, secure and dispose of collateral, and
- The relatively weak economic environment in the upstate New York
territory over the last several years.
21
TrusCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
Though the economic climate in the Upstate New York area has suffered over the
last several years, resulting in higher bankruptcies and relatively flat real
estate prices, overall economic trends in the last 2 years have been improving.
As noted previously, bankruptcies in the Capital District area have recently
decreased on a year over year basis, and general housing prices have continued
to increase. These positive trends have helped marginal credits better manage
their debt load. Because of continued improvement in nearly all of the
indicators of the Company's credit quality and management's assessment of
economic conditions and risk, a negative provision of $1.6 million for the
second quarter was recognized.
Management continues to monitor these in determining future provisions for loan
losses in relation to loan charge offs, recoveries and the level and trends of
nonperforming loans.
Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's
earnings performance and strong capital position enable the Company to raise
funds easily in the marketplace and to secure new sources of funding. The
Company actively manages its liquidity through target ratios established under
its liquidity policies. Continual monitoring of both historical and prospective
ratios allows TrustCo to employ strategies necessary to maintain adequate
liquidity. Management has also defined various degrees of adverse liquidity
situations, which could potentially occur, and has prepared appropriate
contingency plans should such a situation arise.
Noninterest Income
Total noninterest income for the three months ended June 30, 2005 was $6.9
million a decrease of $1.5 million from the comparable period in 2004. During
the 2005 period, the Company recorded net securities gains of $1.3 million
compared to $3.6 million for the comparable period in 2004. Excluding these
securities transactions, noninterest income increased from $4.8 million in the
second quarter of 2004 to $5.6 million for the comparable period in 2005.
Total noninterest income was $15.0 million for the six months of 2005 compared
to $17.1 million for 2004. Excluding net securities gains of $4.9 million and
$7.8 million, in the six month period ended June 30, 2005 and 2004,
respectively, the balances for 2005 and 2004 would have been $10.1 million and
$9.3 million, respectively.
Trust department income increased slightly to $1.6 million for the second
quarter of 2005. The increase in trust fee income is the result of a increase
in assets under management from $945 million as of June 30, 2004 to $974
million as of June 30, 2005. On a year to date basis trust fee income was $3.0
million for both 2005 and 2004.
Fees for other services to customers are down for both the quarter and year to
date between 2004 and 2005 due primarily to loan volume and refinancing
activities.
22
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
The increase in other income for the second quarter of 2005 is due to the gain
recognized from the sale of the former operations center in Schenectady. The
gain was approximately $600 thousand.
Noninterest Expenses
Total noninterest expense for the second quarter of 2005 was $12.2 million as
compared to $11.7 million for 2004. For the six months ended June 30, 2005 and
2004, total noninterest expense was $24.0 million and $24.2 million,
respectively.
Salaries and employee benefits cost decreased from $5.2 million for the second
quarter of 2004 to $5.0 million for the comparable period in 2005. Similar
decreases in salaries and benefits were also noted for the six month period
ended June 30, 2005 compared to 2004. Total salaries and employee benefits were
$10.5 million for 2004 and $10.3 million for 2005.
Net occupancy expense increased $325 thousand for the second quarter of 2005
compared to 2004 due primarily to the new branch operations and the cost of
utilities. The TrustCo branch expansion program added eight new offices since
June 30, 2004.
Equipment expense increased approximately $257 thousand during the second
quarter of 2005 compared to 2004 as a result of new items purchased for the
branch expansion program and upgrades to the ATM equipment. On a year to date
basis, equipment expense increased by $451 thousand to $1.4 million due to the
same factors that affected the second quarter.
Outsourced services decreased from $1.1 million in the second quarter of 2004
to $843 thousand for the second quarter of 2005. On a year to date basis,
outsourced services were $2.2 million in 2004 compared to $2.0 million in 2005.
These costs are for data processing, item processing and certain back room
operations that were transferred to a third party vendor. The decrease in
outsourced services expense between 2004 and 2005 was the result of reductions
in the cost of certain aspects of the outsourced services during this time
period.
Income Taxes
In the second quarter of 2005 and 2004, TrustCo recognized income tax expense
of $8.0 million and $6.8 million, respectively. This resulted in an effective
tax rate of 34.7% for 2005 and 32.2% for 2004. For the six months of 2005,
total income tax expense was $15.8 million compared to $13.8 million for 2004.
This resulted in an effective tax rate of 34.6% for 2005 and 32.6% for 2004.
The increase in effective tax rates during 2005 is primarily due to a reduction
in the proportion of tax exempt income to total pre-tax income as compared to
2004.
Capital Resources
Consistent with its long-term goal of operating a sound and profitable
financial organization, TrustCo strives to maintain strong capital ratios.
New issues of equity securities have not been required since traditionally,
most of its capital requirements are met through capital retention.
23
TrusCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
Total shareholders' equity at June 30, 2005 was $234.2 million, an increase of
$8.4 million from the year-end 2004 balance of $225.8 million. The change in
shareholders' equity between year-end 2004 and June 30, 2005 primarily reflects
net income retained by TrustCo ($7.4 million), the proceeds from shares issued
upon the exercise of stock options ($2.3 million), a $132 thousand decrease in
accumulated other comprehensive income and a $1.2 million increase in treasury
stock.
TrustCo declared dividends of $0.300 per share during the first six months of
2005 and 2004. These resulted in a dividend payout ratio of 75.3% in 2005 and
78.1% in 2004. The Company achieved the following ratios as of June 30, 2005
and 2004:
June 30, Minimum Regulatory
2005 2004 Guidelines
--------------------------------------------
Tier 1 risk adjusted
capital 17.03% 16.61% 4.00%
Total risk adjusted
capital 18.31% 17.89% 8.00%
In addition, at June 30, 2005 and 2004, the consolidated equity to total assets
ratio (excluding the mark to market effect of securities available for sale)
was 8.00% and 7.41%, respectively, compared to a minimum regulatory requirement
of 4.00%.
Pending Transaction
On April 13, 2005 Trustco Bank and Patriot Federal Bank (Proposed) announced
that they had entered into an agreement for the sale of a branch location from
Trustco Bank to Patriot Federal subject to certain contingencies, such as
regulatory approval. Trustco Bank had acquired the branch location as part of
its acquisition of Landmark Community Bank in 2000. In addition to the real
estate, the branch sale will include approximately $10 million of deposits. The
transaction is expected to be completed by year end.
Critical Accounting Policies:
Pursuant to recent 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
24
TrusCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
such judgments can have on the results of operations. Included in Note 1 to the
Consolidated Financial Statements contained in the Company's 2004 Annual Report
on Form 10-K is a description of the significant accounting policies that are
utilized by the Company in the preparation of the Consolidated Financial
Statements.
Proposed Accounting Standards:
In December 2003, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 03-3, "Accounting for Certain Loans or Debt
Securities Acquired in a Transfer." The SOP is effective for loans acquired in
fiscal years beginning after December 15, 2004. The SOP addresses accounting
for differences between contractual cash flows and cash flows expected to be
collected from an investor's initial investment in loans or debt securities
(loans) acquired in a transfer if those differences are attributable, at least
in part, to credit quality. The SOP applies to loans acquired in business
combinations but does not apply to originated loans. During the first quarter
of 2005, the Company implemented the provision of this SOP. This implementation
did not have a material impact on the Company's financial condition or results
of operations.
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. The Company's disclosures in Note 10 to the
consolidated financial statements incorporate the requirements of the revised
Statement 132.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("the Act") became law in the United States. The Act introduced 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 Medicare Part D under the Act. In accordance
with FASB Staff Position FAS 106-2, "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. The Company is still
analyzing the specific authoritative guidance on the accounting for the federal
subsidy, which was issued in January 2005, but the Company anticipates that, in
order to make the plan actuarially equivalent, it will make minor changes to
its non-pension postretirement plan. Accordingly, the measures of the
accumulated non-pension postretirement benefit obligation and net periodic
non-pension postretirement benefit cost do not reflect any amount associated
with the subsidy.
25
TrustCo Bank Corp NY
Management's Discussion and Analysis - continued
June 30, 2005
In December 2004, the FASB issued revised statement No. 123 ("FAS 123R"),
"Share-Based Payment," which requires companies to expense the estimated
grant-date fair value of employee stock options and similar awards. In April
2005, the effective date of the accounting provisions of FAS 123R were delayed
from July 1, 2005 to January 2006 for public companies like TrustCo. The
Company will adopt the provisions of FAS 123R using a modified prospective
application. Under modified prospective application, FAS 123R will apply to
new awards and to awards that are outstanding on the effective date and are
subsequently modified or cancelled. Compensation expense for outstanding awards
for which the requisite service had not been rendered as of the effective date
will be recognized over the remaining service period using the compensation
cost calculated for pro forma disclosure purposes under FAS 123. The Company
will incur additional expense beginning in first quarter of 2006 related to new
awards granted and the unvested portions of earlier awards. The Company is in
the process of determining the impact the recognition of compensation expense
related to stock awards will have on its consolidated financial statements.
26
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average
balance sheet, related interest income and expense and the average annualized
yields on interest earning assets and annualized rates on interest bearing
liabilities of TrustCo (adjusted for tax equivalency) for each of the reported
periods. Nonaccrual loans are included in loans for this analysis. The average
balances of securities available for sale is calculated using amortized costs
for these securities. Included in the balance of shareholders' equity is
unrealized appreciation, net of tax, in the available for sale portfolio of
$1.5 million in 2005 and $8.4 million in 2004. The subtotals contained in the
following table are the arithmetic totals of the items contained in that
category.
Three 2005 Three 2004
Months Months
Average Interest Average Average Interest Average Change in Variance Variance
Balance Rate Balance Rate Interst Balance Rate
(dollars in thousands) Income/ Change Change
Expense
Assets
Securities available for sale:
U.S. Treasuries and agencies $ 664,164 $ 8,462 5.10 % $ 725,402 $ 9,892 5.45 % (1,430) (812) (618)
Mortgage-backed securities and
collateralized mortgage obligations 213,930 2,468 4.61 % 49,930 657 5.26 % 1,811 1,882 (71)
States and political subdivisions 130,524 2,508 7.69 % 169,126 3,326 7.87 % (818) (743) (75)
Other 16,150 276 6.85 % 146,219 1,945 5.32 % (1,669) (2,466) 797
--------- -------- ------ --------- ------- ------- ------- ------- -------
Total securities available for sale 1,024,768 13,714 5.35 % 1,090,677 15,820 5.80 % (2,106) (2,140) 34
Federal funds sold and other
short-term Investments 446,500 3,197 2.87 % 496,233 1,206 0.98 % 1,991 (109) 2,100
Commercial Loans 201,471 3,634 7.22 % 193,113 3,302 6.84 % 332 145 187
Residential mortgage loans 892,638 14,207 6.37 % 777,383 13,050 6.72 % 1,157 1,784 (627)
Home equity lines of credit 193,126 2,806 5.83 % 179,303 1,732 3.88 % 1,074 143 931
Installment loans 12,049 350 11.65 % 12,408 354 11.47 % (4) (9) 5
--------- -------- ------- --------- ------- ------- ------- ------ -------
Loans, net of unearned income 1,299,284 20,997 6.47 % 1,162,207 18,438 6.35 % 2,559 2,063 496
Total interest earning assets 2,770,552 37,908 5.48 % 2,749,117 35,464 5.16 % 2,444 (186) 2,630
--------- -------- ------- --------- ------- ------- ------- ------ -------
Allowance for loan losses (48,108) (49,020)
Cash & non-interest earning assets 122,043 140,655
--------- ----------
Total assets $ 2,844,487 $2,840,752
========== ==========
Liabilities and shareholders' equity
Deposits:
Interest Bearing Checking Accounts $ 325,898 380 0.47 % $ 331,312 395 0.48 % (15) (7) (8)
Money market accounts 143,104 571 1.60 % 166,482 379 0.92 % 192 (45) 237
Savings 810,579 1,493 0.74 % 811,822 1,982 0.98 % (489) (3) (486)
Time deposits 993,519 7,443 3.01 % 961,644 6,480 2.71 % 963 222 741
--------- ------ ------ ---------- ------ ------ ----- ----- ------
Total interest bearing deposits 2,273,100 9,887 1.74 % 2,271,260 9,236 1.64 % 651 167 484
Short-term borrowings 81,499 419 2.06 % 112,124 201 0.72 % 218 (37) 255
Long-term debt 103 2 5.24 % 158 2 5.45 % - - -
--------- ------ ------ ---------- ------ ------ ----- ----- ------
Total Interest Bearing Liability 2,354,702 10,308 1.76 % 2,383,542 9,439 1.59 % 869 130 739
Demand deposits 233,138 ------ 208,612 ------ ----- ----- ------
Other liabilities 28,518 35,065
Shareholders' equity 228,129 213,533
Total liab. & shareholders'equity $ 2,844,487 $2,840,752
========== ==========
Net Interest Income 27,600 26,025 1,575 (316) 1,891
------ ------ ----- ----- ------
Net Interest Spread 3.72 % 3.57 %
Net Interest margin (net interest income
to total interest earning assets) 3.98 % 3.78 %
Tax equivalent adjustment (892) (1,359)
------- -------
Net Interest Income per book 26,708 24,666
======== =======
27
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields
on interest earning assets and annualized rates on interest bearing liabilities
of TrustCo (adjusted for tax equivalency) for each of the reported periods.
Nonaccrual loans are included in loans for this analysis. The average balances
of securities available for sale is calculated using amortized costs for these
securities. Included in the balance of shareholders' equity is unrealized
appreciation, net of tax, in the available for sale portfolio of $2.3 million
in 2005 and $15.3 million in 2004. The subtotals contained in the following
table are the arithmetic totals of the items contained in that category.
Six 2005 Six 2004
Months Months
Average Interest Average Average Interest Average Change in Variance Variance
Balance Rate Balance Rate Interest Balance Rate
(dollars in thousands) Income/ Change Change
Expense
Assets
Securities available for sale:
U.S. Treasuries and agencies $ 591,410 $ 15,339 5.19 % $ 735,454 $ 20,727 5.64 % (5,388) (3,828) (1,560)
Mortgage-backed securities and
collateralized mortgage obligations 204,491 4,701 4.60 % 59,206 1,537 5.19 % 3,164 3,318 (154)
States and political subdivisions 138,717 5,347 7.71 % 174,812 6,884 7.87 % (1,537) (1,399) (138)
Other 15,239 411 5.42 % 90,125 2,468 5.48 % (2,057) (2,030) (27)
--------- ------- ------- ---------- -------- ------- --------- -------- ---------
Total securities available for sale 949,857 25,798 5.43 % 1,059,597 31,616 5.97 % (5,818) (3,940) (1,878)
Federal funds sold and other
short-term Investments 537,365 7,000 2.63 % 486,135 2,400 0.99 % 4,600 275 4,325
Commercial Loans 199,739 7,099 7.11 % 192,755 6,607 6.86 % 492 245 247
Residential mortgage loans 871,031 27,853 6.40 % 779,822 26,481 6.79 % 1,372 2,696 (1,324)
Home equity lines of credit 192,630 5,328 5.58 % 176,841 3,413 3.88 % 1,915 324 1,591
Installment loans 12,150 707 11.74 % 12,571 728 11.65 % (21) (27) 6
--------- ------- ------- ----------- -------- ------- --------- -------- ---------
Loans, net of unearned income 1,275,550 40,987 6.44 % 1,161,989 37,229 6.41 % 3,758 3,238 520
Total interest earning assets 2,762,772 73,785 5.35 % 2,707,721 71,245 5.27 % 2,540 (427) 2,967
Allowance for loan losses (48,493) ------- ------- (49,259) -------- ------- --------- -------- ---------
Cash & non-interest earning assets 129,127 152,798
--------- ----------
Total assets $ 2,843,406 $2,811,260
========= ==========
Liabilities and shareholders' equity
Deposits:
Interest Bearing Checking Accounts $ 324,940 767 0.48 % $ 328,577 785 0.48 % (18) (18) -
Money market accounts 145,179 1,011 1.40 % 164,943 828 1.01 % 183 (82) 265
Savings 814,538 3,207 0.79 % 798,231 3,905 0.98 % (698) 82 (780)
Time deposits 991,494 14,532 2.96 % 956,891 12,883 2.71 % 1,649 464 1,185
--------- ------ ------- --------- ------ ------ --------- -------- ---------
Total interest bearing deposits 2,276,151 19,517 1.73 % 2,248,642 18,401 1.65 % 1,116 446 670
Short-term borrowings 81,978 813 2.00 % 105,885 379 0.72 % 434 (63) 497
Long-term debt 106 3 5.27 % 182 5 5.55 % (2) (2) (0)
--------- ------ ------- --------- ------ ------ --------- -------- ---------
Total Interest Bearing Liabilities 2,358,235 20,333 1.74 % 2,354,709 18,785 1.60 % 1,548 381 1,167
Demand deposits 229,789 ------ 201,832 ------ --------- -------- ---------
Other liabilities 27,050 32,751
Shareholders' equity 228,332 221,968
Total liab. & shareholders' equity $ 2,843,406 $2,811,260
========== ==========
Net Interest Income 53,452 52,460 992 (808) 1,800
------ ------ --------- -------- ---------
Net Interest Spread 3.61 % 3.67 %
Net Interest margin (net interest income
to total interest earning assets) 3.87 % 3.87 %
Tax equivalent adjustment (1,884) (2,731)
------ ------
Net Interest Income per book 51,568 49,729
====== ======
28
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
As detailed in the Annual Report to Shareholders as of December 31, 2004 the
Company is subject to interest rate risk as its principal market risk. As
noted in detail throughout this Management's Discussion and Analysis for the
six months ended June 30, 2005, the Company continues to respond to changes
in interest rates in a fashion to position the Company to meet both short
term earning goals but to also allow the Company to respond to changes in
interest rates in the future. Consequently the average balance of federal
funds sold and other short-term investments has increased from $486.1 million
in 2004 to $537.4 million in 2005. As investment opportunities present
themselves, management plans to invest funds from the federal funds sold and
other short-term investment portfolio into the securities available for sale
and loan portfolios. This trend is expected to continue into the third
quarter. The Company believes there was no significant change to its interest
rate risk during the second quarter of 2005.
Item 4.
Controls and Procedures
An evaluation was carried out under the supervision and with the participation
of the Company's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company's disclosure controls
and procedures as of the end of the period covered by this report.
The Company maintains disclosure controls and procedures (as that term is
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934 ("Exchange Act") designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Based upon this evaluation of those disclosure controls and procedures, the
Chief Executive and Chief Financial Officer of the Company concluded, as of
the end of the period covered by this report, that the Company's disclosure
controls and procedures were effective to ensure that information required to
be disclosed in the reports the Company files and submits under the Exchange
Act is recorded, processed, summarized and reported as and when required.
In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Further, no evaluation of a cost-effective systems of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, willbe detected.
29
There have been no changes in internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter
to which this report relates that have materially affected or are reasonably
likely to materially affect, the internal control over financial reporting.
30
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
- ----------------------------------------------------------------------------
Total
Number of
Shares Maximum Number
Purchased as of Shares that
Total Part of May Yet Be
Number of Average Price Publicly Purchases Under
Shares Paid per Share Announced the Plans
Period Purchased Plans or or Programs
Programs
- -------------------------------------------------------------------------------
April 1 - April 30 - $ - 0 N/A
- -------------------------------------------------------------------------------
May 1 - May 31 200,000 $ 11.78 0 N/A
- -------------------------------------------------------------------------------
June 1 - June 30 151,203 $ 12.73 0 N/A
- -------------------------------------------------------------------------------
Total 351,203 $ 12.19 0 N/A
- -------------------------------------------------------------------------------
All 351,203 shares were purchased by other than through a publicly announced
plan or program. All purchases were made in open-market transactions in
satisfaction of the Company's obligations upon exercise of outstanding stock
options issued by the Company and for quarterly sales to the dividend
reinvestment plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submissions of Matters to Vote of Security Holders
At the annual meeting held May 9, 2005, shareholders of the Company
were asked to consider the Company's nominees for directors and to
elect two (2) directors. The Company's nominees for director were
Anthony J. Marinello, MD, PhD (three-year term) and William D. Powers
(three-year term).
The results of shareholder voting are as follows:
1.Election of Directors:
Director For Withheld
-------- --- --------
Anthony J. Marinello, MD, PhD 61,236,690 1,903,805
William D. Powers 61,092,444 2,048,051
31
Directors continuing in office are Joseph A. Lucarelli, Robert A.
McCormick, and William J. Purdy.
2. Proposal to ratify the appointment of KPMG LLP as the
independent certified public accountants of
TrustCo for the fiscal year ending December 31, 2005.
For Against Abstain
--- ------- -------
61,627,767 1,089,962 422,966
Item 5. Other Information
None.
32
Item 6.Exhibits and Reports on Form 8-K
(a)Exhibits
Reg S-K (Item 601)
Exhibit No. Description
- -----------------------------------------------------------------------------
31(a) Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick,
principal executive officer.
31(b) Rule 13a-15(e)/15d-15(e) Certification of Robert T. Cushing,
principal financial officer.
32 Section 1350 Certifications of Robert J. McCormick, principal
executive officer and Robert T. Cushing, principal financial
officer.
(b)Reports on Form 8-K
During the quarter ended June 30, 2005, TrustCo filed the following reports on
Form 8-K:
April 13, 2005, regarding a press release dated April 13, 2005, announcing
Trustco Bank and Patriot Federal Bank (proposed) sale/purchase of Canajoharie
office.
April 19, 2005, regarding two press releases dated April 19, 2005, detailing
first quarter 2005 financial results.
May 9, 2005, regarding a press release dated May 9, 2005, announcing the
results of its 2005 Annual Meeting of Shareholders.
May 17, 2005, regarding a press release dated May 17, 2005, declaring a cash
dividend of $0.15 per share payable on July 1, 2005, to shareholders of record
at the close of business on June 3, 2005.
June 23, 2005, regarding a press release dated June 22, 2005, announcing the
appointment of Robert J. McCormick to the Company's Board of Directors.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
By: /s/Robert J. McCormick
------------------------------
Robert J. McCormick
President and Chief Executive
Officer
By: /s/Robert T. Cushing
------------------------------
Robert T. Cushing
Executive Vice President
and Chief Financial Officer
Date: August 5, 2005
34
Exhibits Index
Reg S-K
Exhibit No. Description
31(a) Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick,
principal executive officer.
31(b) Rule 13a-15(e)/15d-15(e) Certification of Robert T. Cushing,
principal financial officer.
32 Section 1350 Certifications of Robert J. McCormick, principal
executive officer and Robert T. Cushing, principal financial
officer.
35
Exhibit 31(a)
Certification
I, Robert J. McCormick, the principal executive officer and of TrustCo Bank
Corp NY, ("registrant") certify that:
1. I have reviewed this report on Form 10-Q of TrustCo Bank Corp NY;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e) for the registrant and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statement for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
36
Exhibits
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 5, 2005
/s/ Robert J. McCormick
--------------------------
Robert J. McCormick
President and
Chief Executive Officer
37
Exhibit 31(b)
Certification
I, Robert T. Cushing, the principal financial officer of TrustCo Bank Corp NY,
("registrant") certify that:
1. I have reviewed this report on Form 10-Q of TrustCo Bank Corp NY;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I, are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
38
Exhibits
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 5, 2005
/s/ Robert T. Cushing
--------------------------------
Robert T. Cushing
Executive Vice President and
Chief Financial Officer
39
Exhibits
Exhibit 32
Certification
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 Of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of TrustCo Bank Corp NY (the
"Company") on Form 10-Q for the period ending June 30, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Robert J. McCormick
------------------------------
Robert J. McCormick
President and
Chief Executive Officer
/s/ Robert T. Cushing
------------------------------
Robert T. Cushing
Executive Vice President and
Chief Financial Officer
August 5, 2005
40