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, 1999
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
320 STATE STREET, SCHENECTADY, NEW YORK 12305
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Common
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes.(x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class of Common Stock as of July 23, 1999
--------------------------- ----------------------
$1 Par Value 26,887,074
TrustCo Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. Interim Financial Statements (Unaudited):
Consolidated Statements of Income for the
Three Months and Six Months Ended 1
June 30, 1999 and 1998
Consolidated Statements of Financial Condition 2
as of June 30, 1999 and December 31, 1998
Consolidated Statements of Cash Flows for the 3 - 4
Six Months Ended June 30, 1999 and 1998
Notes to Consolidated Interim Financial 5 - 7
Statements
Independent Auditors' Review Report 8
Item 2. Management's Discussion and Analysis 9 - 25
Item 3. Quantitative and Qualitative Disclosures About 26
Market Risk
Part II. OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities --None
Item 4. Submissions of Matters to Vote of Security 29
Holders - Annual Meeting
Item 5. Other Information - None
i
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
Reg S-K (Item 601)
Exhibit No. Description ____ Page No.
3 (i) Certificate of Amendment of the Certificate of
Incorporation of TrustCo Bank Corp NY
22 Submission of Matters to Vote of Security 29
Holders - Annual Meeting
(b) Reports on Form 8-K
Filing of Form 8-K on May 18, 1999, regarding May 18, 1999, letter
to shareholders which contained discussion of May 17, 1999, annual
meeting of shareholders, and a press release dated May 18, 1999,
declaring a cash dividend of $0.275 payable on July 1, 1999, to
shareholders of record June 11, 1999, incorporated herein by reference.
Filing of Form 8-K on July 20, 1999, regarding two press releases
dated July 20, 1999, detailing second quarter financial results,
incorporated herein by reference.
ii
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
1999 1998 1999 1998
Interest income:
Interest and fees on loans $ 26,466 27,805 53,026 55,687
Interest on U. S. Treasuries and agencies 2,680 3,824 5,632 8,902
Interest on states and political
subdivisions 1,825 1,538 3,598 3,059
Interest on mortgage-backed securities 4,244 2,963 8,323 5,872
Other securities 2,201 1,388 4,287 2,279
Interest on federal funds sold 4,182 6,296 8,398 11,418
Total interest income 41,598 43,814 83,264 87,217
Interest expense:
Interest on deposits:
Interest-bearing checking 701 937 1,377 1,845
Savings 4,507 5,228 8,904 10,343
Money market deposit accounts 413 415 812 832
Time deposits 11,511 13,974 23,830 27,722
Interest on short-term borrowings 1,481 1,904 2,929 3,471
Total interest expense 18,613 22,458 37,852 44,213
Net interest income 22,985 21,356 45,412 43,004
Provision for loan losses 1,500 1,558 3,013 2,930
Net interest income after provision
for loan losses 21,485 19,798 42,399 40,074
Noninterest income:
Trust department income 2,040 2,024 3,911 3,699
Fees for other services to customers 2,117 2,150 4,249 4,206
Net gain/(loss) on securities transactions (657) 104 (1,077) 136
Other 750 1,069 2,587 1,860
Total noninterest income 4,250 5,347 9,670 9,901
Noninterest expenses:
Salaries and employee benefits 6,092 5,662 12,316 11,459
Net occupancy expense 1,203 1,135 2,444 2,400
Equipment expense 1,310 1,346 3,107 2,594
FDIC insurance expense 61 61 124 123
Professional services 654 792 1,248 1,379
Other real estate expenses / (income) (296) 36 (384) 362
Other 2,329 2,267 4,700 4,511
Total noninterest expenses 11,353 11,299 23,555 22,828
Income before taxes 14,382 13,846 28,514 27,147
Applicable income taxes 4,890 5,180 9,699 10,103
Net income $ 9,492 8,666 18,815 17,044
Net income per Common Share:
- Basic $ 0.35 0.32 0.70 0.63
- Diluted $ 0.34 0.31 0.67 0.61
Per share data is adjusted for the effect of the 15% stock split declared
See accompanying notes to consolidated interim financial statements.
-1-
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(dollars in thousands, except share data)
06/30/99 12/31/98
ASSETS: (unaudited)
Cash and due from banks $ 42,230 41,950
Federal funds sold 293,000 358,000
Other short-term funds 0 24,979
Total cash and cash equivalents 335,230 424,929
Securities available for sale:
U. S. Treasuries and agencies 175,531 167,825
States and political subdivisions 134,886 129,745
Mortgage-backed securities 242,162 249,489
Other 160,595 170,351
Total securities available for sale 713,174 717,410
Loans:
Commercial 187,189 188,115
Residential mortgage loans 975,853 961,499
Home equity line of credit 140,242 147,581
Installment loans 23,222 26,574
Total loans 1,326,506 1,323,769
Less:
Allowance for loan losses 55,656 54,375
Unearned income 957 1,066
Net loans 1,269,893 1,268,328
Bank premises and equipment 15,775 17,022
Real estate owned 2,518 5,174
Other assets 72,426 52,217
Total assets $ 2,409,016 2,485,080
LIABILITIES:
Deposits:
Demand $ 151,142 154,358
Interest-bearing checking 257,300 266,027
Savings accounts 672,855 660,376
Money market deposit accounts 60,613 58,061
Certificates of deposit (in denominations of
$100,000 or more) 115,277 139,310
Time deposits 787,544 829,282
Total deposits 2,044,731 2,107,414
Short-term borrowings 142,178 147,924
Accrued expenses and other liabilities 45,579 43,900
Total liabilities 2,232,488 2,299,238
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 and 50,000,000 shares authorized
and 28,164,017 and 27,976,793 shares issued June 30, 1999
and December 31, 1998, respectively 28,164 27,977
Surplus 112,013 110,398
Undivided profits 44,556 40,533
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale 7,860 18,603
Treasury stock at cost - 1,328,279 and 1,184,525 shares
June 30, 1999 and December 31, 1998, respectively (16,065) (11,669)
Total shareholders' equity 176,528 185,842
Total liabilities and shareholders' equity $ 2,409,016 2,485,080
See accompanying notes to consolidated interim financial
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, 1999 1998
-------- --------
Cash flows from operating activities:
Net income..............................................$ 18,815 17,044
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,385 1,062
Gain on sales of fixed assets.......................... (1,246) (587)
Provision for loan losses.............................. 3,013 2,930
Loss on sale of securities available for sale.......... 2,268 2
Gain on sale of securities available for sale.......... (1,191) (138)
Provision for deferred tax benefit..................... (717) (2,076)
(Increase)/decrease in taxes receivable................. 9,571 (3,135)
Decrease in interest receivable........................ 420 593
Increase/(decrease) in interest payable................ (319) 51
Increase in other assets............................... (21,141) (2,941)
Increase in accrued expenses........................... 1,979 5,313
-------- --------
Total adjustments.................................... (5,978) 1,074
-------- --------
Net cash provided by operating activities................ 12,837 18,118
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale... 115,191 29,522
Purchase of securities available for sale.............. (241,016) (181,723)
Proceeds from maturities and calls
of securities available for sale...................... 110,821 156,261
Net increase in loans.................................. (6,674) (18,095)
Proceeds from dispositions of real estate owned........ 3,830 2,653
Proceeds from sales of fixed assets.................... 2,081 1,474
Capital expenditures................................... (973) (887)
-------- --------
Net cash used in investing activities................ (16,740) (10,795)
-------- --------
Cash flows from financing activities:
Net increase/(decrease) in deposits.................... (62,683) 50,171
Increase/(decrease) in short-term borrowing............ (5,746) 1,628
Proceeds from exercise of stock options................ 1,322 170
Proceeds from sale of treasury stock................... 2,790 3,065
Purchase of treasury stock............................. (6,706) (7,054)
Dividends paid......................................... (14,773) (12,858)
-------- --------
Net cash (used in)/provided by financing activities.. (85,796) 35,122
-------- --------
Net increase/(decrease) in cash and cash equivalents..... (89,699) 42,445
Cash and cash equivalents at beginning of period......... 424,929 437,740
-------- --------
Cash and cash equivalents at end of period..............$ 335,230 480,185
======== ========
See accompanying notes to consolidated interim financial statements. (Continued)
-3-
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows Continued (Unaudited)
(dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
SIX MONTHS ENDED June 30, 1999 1998
-------- --------
Interest paid.........................................$ 38,171 44,162
Income taxes paid...................................... 845 12,370
Transfer of loans to real estate owned................. 2,096 2,219
Increase/(decrease) in dividends payable............... 19 (37)
Change in unrealized (gain)/loss on securities
available for sale-gross of deferred taxes............ 18,163 (7,440)
Change in deferred tax effect on unrealized gain/(loss)
on securities available for sale...................... (7,420) 3,040
See accompanying notes to consolidated interim financial statements.
-4-
TrustCo Bank Corp NY
Notes to Consolidated Interim Financial Statements
(Unaudited)
1. Financial Statement Presentation
In the opinion of the management of TrustCo Bank Corp NY (the Company), the
accompanying unaudited Consolidated Interim Financial Statements contain
all adjustments necessary to present fairly the financial position as of
June 30, 1999, the results of operations for the three months and six months
ended June 30, 1999 and 1998, and the cash flows for the six months ended
June 30, 1999 and 1998. 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 1998 Annual Report to Shareholders on
Form 10-K.
2. Earnings Per Share
A reconciliation of the component parts of earnings per share for the three
month and six month periods ended June 30, 1999 and 1998 follows:
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
-------------------------------------------
For the quarter ended
June 30, 1999:
Basic EPS:
Net income available to $9,492 26,888 $0.35
common shareholders.........
Effect of Dilutive Securities:
Stock options............... ----- 1,076 -----
-------------------------------------------
Diluted EPS $9,492 27,964 $0.34
===========================================
For six months ended
June 30, 1999:
Basic EPS:
Net income available to
common shareholders......... $18,815 26,881 $0.70
Effect of Dilutive Securities:
Stock options............... ----- 1,097 -----
------------------------------------------
Diluted EPS $18,815 27,978 $0.67
==========================================
Per share data have been adjusted for the 15% stock split declared in
August 1998.
5
Weighted Average
(In thousands, Net Shares Per Share
except per share data) Income Outstanding Amounts
---------------------------------------------
For the quarter ended
June 30, 1998:
Basic EPS:
Net income available to
common shareholders........ $8,666 26,804 $0.32
Effect of Dilutive Securities:
Stock options.............. ----- 1,116 -----
--------------------------------------------
Diluted EPS $8,666 27,920 $0.31
============================================
For six months ended
June 30, 1998:
Basic EPS:
Net income available to
common shareholders........ $17,044 26,843 $0.63
Effect of Dilutive Securities:
Stock options............... ----- 1,101 -----
-------------------------------------------
Diluted EPS $17,044 27,944 $0.61
===========================================
Per share data have been adjusted for the 15% stock split declared in
August 1998.
3. Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," (Statement 130). This Statement establishes standards for reporting
and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that
are currently accounted for as direct entries to equity, such as the mark to
market adjustment on securities available for sale, foreign currency items
and minimum pension liability adjustments. At the Company, comprehensive
income represents net income plus other comprehensive income, which consists
of the net change in unrealized gains or losses on securities available for
sale for the period. Accumulated other comprehensive income represents the
net unrealized gains or losses on securities available for sale as of the
balance sheet dates.
6
Comprehensive income for the three month periods ended June 30, 1999 and
1998 was $820,000 and $14,504,000 respectively, and $8,072,000 and
$21,444,000 for the six month periods ended June 30, 1999 and 1998,
respectively. The following summarizes the components of other
comprehensive income:
(dollars in thousands)
Unrealized gains on securities: Three months ended June 30
1999 1998
--------------------------------
Unrealized holding gains/(losses) arising
during period, net of tax (pre-tax loss
of $15,318 for 1999 and pre-tax gain of
$9,975 for 1998) ($9,061) 5,899
Reclassification adjustment for net
gain/(loss) realized in net income
during the period, net of tax (pre-tax
loss of $657 for 1999 and pre-tax
gain of $104 for 1998) (389) 61
-------------------------------
===============================
Other comprehensive income/(loss) ($8,672) 5,838
===============================
(dollars in thousands)
Unrealized gains on securities: Six months June 30
1999 1998
Unrealized holding gains/(losses)
arising during period, net of tax
(pre-tax loss of $19,240 for 1999
and pre-tax gain of $7,576for 1998) ($11,380) 4,480
Reclassification adjustment for net
gain/(loss) realized in net income
during period, net of tax (pre-tax
loss of $1,077 for 1999 and pre-tax
gain of $136 for 1998) (637) 80
-----------------------------
Other comprehensive income/(loss) ($10,743) $4,400
==============================
7
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have reviewed the consolidated statement of financial condition of TrustCo
Bank Corp NY and subsidiaries (the Company) as of June 30, 1999, and the
related consolidated statements of income for the three month and six month
periods ended June 30, 1999 and 1998, and the consolidated statements of cash
flows for the six month periods ended June 30, 1999 and 1998. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of TrustCo Bank
Corp NY and subsidiaries as of December 31, 1998 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated January 22,
1999, 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, 1998 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
July 9, 1999
8
TrustCo Bank Corp NY
Management's Discussion and Analysis
June 30, 1999
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, 1999,
with comparisons to 1998 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 1998 Annual Report to Shareholders should be read in conjunction
with this review. Amounts in prior period consolidated interim financial
statements are reclassified whenever necessary to conform to the current
period's presentation. Per share results have been adjusted for the 15% stock
split declared in August 1998.
Forward-looking Statements Statements included in this review and in future
filings by TrustCo with the Securities and Exchange Commission, in TrustCo's
press releases, and in oral statements made with the approval of an authorized
executive officer, which are not historical or current facts, are
"forward-looking statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. TrustCo
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The following
important factors, among others, in some cases have affected and in the future
could affect TrustCo's actual results, and could cause TrustCo's actual
financial performance to differ materially from that expressed in any
forward-looking statement: (1) credit risk, (2) interest rate risk, (3)
competition, (4) certain vendors of critical systems or services failing to
comply with Year 2000 programming issues, (5) changes in the regulatory
environment, and (6) changes in general business and economic trends. The
foregoing list should not be construed as exhaustive, and the Company disclaims
any obligation to subsequently revise any forward-looking statements to reflect
events or circumstances after the date of such statements, or to reflect the
occurrence of anticipated or unanticipated events.
Following this discussion is the table "Distribution of Assets, Liabilities and
Shareholders' Equity: Interest Rates and Interest Differential" which gives a
detailed breakdown of TrustCo's average interest earning assets and interest
bearing liabilities for the three months and six months ended June 30, 1999 and
1998.
Overview
TrustCo recorded net income of $9.5 million, or $0.34 of diluted earnings per
share for the three months ended June 30, 1999, as compared to net income of
$8.7 million or $0.31 of diluted earnings per share in the same period in 1998.
For the six month period ended June 30, 1999, TrustCo recorded net income of
$18.8 million, or $0.67 of diluted earnings
9
per share, as compared to $17.0 million, or $0.61 of diluted earnings per share
for the comparable period in 1998.
The primary factors accounting for the year to date increases are:
' Increase in average total interest earning assets of $45.7
million or 2.0% between June 30, 1998 and June 30, 1999,
' A 16 basis points increase in the net interest margin from 3.85%
for the first six months of 1998 to 4.01% for 1999,
' An increase in noninterest income (excluding securities
transactions) by approximately $1 million to $10.7 million at June
30, 1999, and
' A reduction in applicable income taxes by $400 thousand between
1998 and 1999.
These increases were partially offset by an increase of $700 thousand in
noninterest expense.
Asset/Liability Management
The Company strives to generate superior earnings capabilities through a mix of
core deposits, funding a prudent mix of earning assets. This is, in its most
fundamental form, the essence of asset/liability management. Additionally,
TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of
net interest income to changes in interest rates to an acceptable level while
enhancing profitability both on a short-term and long- term basis.
Earning Assets
Total average interest earning assets increased from $2.34 billion for the
second quarter of 1998 to $2.36 billion in 1999 with an average yield of 7.23%
in 1999 and 7.63% in 1998. Income on earning assets decreased by $2.1 million
during this same time-period from $44.7 million in 1998 to $42.6 million in
1999. The decrease in interest income on earning assets was attributable to the
reduction in yield on these assets.
For the six month period ended June 30, 1999, the average balance of interest
earning assets was $2.36 billion, an increase of $45.7 million or 2% from the
balance for the comparable period in 1998 of $2.31 billion. The average yield on
interest earning assets was 7.71% for 1998, compared to 7.24% in 1999. The
increase in the average balance of earning assets did not completely offset the
reduction in the yield earned on these assets, thereby resulting in a reduction
in interest income of $3.7 million to $85.2 million for the six months of 1999,
compared to $88.9 million for the six months of 1998.
10
Loans
The average balance of loans for the second quarter was $1.32 billion in 1999
and $1.31 billion in 1998. The yield on loans decreased from 8.54% in 1998 to
8.01% in 1999. The combination of the higher average balances offset by the
lower rates resulted in a decrease in the interest income on loans by $1.4
million.
For the six-month period ended June 30, 1999, the average balance in the loan
portfolio was $1.32 billion compared to $1.30 billion for the comparable period
in 1998. The average yield decreased from 8.59% in 1998 to 8.05% in 1999. The
increase in the average balance of loans outstanding offset slightly the impact
of the reduction in the yield resulting in total interest income of $53.1
million in 1999 compared to $55.9 million in 1998.
The reduction in the yield in the loan portfolio was the result of dramatic
reductions in the rates for new and refinanced loans. Since June 1998, market
interest rates on real estate loan products have decreased, thereby stimulating
new loan demand and providing an opportunity for customers to refinance their
existing loan balances at lower rates. This situation resulted in the
residential mortgage loan portfolio growing on average by $46.8 million for the
six-month period ended June 30, 1999, compared to June 30, 1998. This growth in
the residential mortgage loan portfolio caused the yield to decrease from 8.11%
for the six-month period ended June 30, 1998 to 7.82% for the comparable period
in 1999. The home equity loan portfolio and the commercial real estate portfolio
are also significantly affected by the interest rates in the marketplace. Both
products have rates tied to various indexes such as prime rate. As the index
changes, so will the rates earned on these assets. The commercial loan yield
decreased from 9.54% for the six-month period ended June 30, 1998 to 8.90% for
the six-month period ended June 30, 1999. The home equity loan portfolio
experienced a similar reduction in rates as the average yield decreased from
9.44% in 1998 to 7.72% in 1999. The home equity loan rate decline was also the
result of reductions made in the pricing process for this product in order to
make it more competitive with home equity loans offered at other financial
institutions. Though these changes in pricing were made for the home equity loan
product, the average balance of these loans decreased from $165.8 million for
the six-month period ended June 30, 1998 to $144.1 million for the comparable
period in 1999.
Securities Available for Sale
During the second quarter of 1999, the average balance of securities available
for sale was $682.1 million with a yield of 6.98%, compared to $579.7 million
for the second quarter of 1998 with a yield of 7.23%. The combination of the
increase in average balance offset by the reduction in the yields caused an
increase in interest income on securities available for sale of $1.4 million
between the second quarter of 1999 and 1998.
The six-month results reflect the same principal trends noted for the second
quarter. The total average balance of securities available for sale during the
six months of 1999 was $680.2 million with an average yield of 6.96% compared to
an average balance for
11
1998 of $592.7 million with a yield of 7.30%.
Reflected in both the second quarter and six-month results are reductions in the
average balances invested in securities issued by the U.S. Government or its
agencies that are "callable" by the agency. As interest rates in the market have
decreased, these securities were called by the agency and consequently resulted
in TrustCo having additional funds in overnight investments. Through the second
quarter there has also been an increase in the amount invested in
mortgage-backed securities. These are pass through securities that are secured
by the underlying mortgage loans and government guarantees. With the types of
mortgage-backed securities that TrustCo purchases, there is little credit risk
in the portfolio. Rather, the risk with respect to these securities rests with
the issue of interest rates. As interest rates in the mortgage markets decrease,
the underlying loans will prepay early or refinance in their entirety.
Generally, mortgage-backed securities provide cash flows over a longer time
period to final maturity, than do callable securities.
Also during the later part of 1998 and into early 1999, TrustCo has invested in
asset-backed securities. The underlying collateral for these bonds are home
equity loans and home equity lines of credit. Virtually all of the bonds are
insured and have an average life of less than three years. All of the bonds are
"AAA" rated by Standard and Poors or Moody's. At June 30, 1999, the Company had
invested $115.6 million in asset-backed securities.
Federal Funds Sold
During the second quarter of 1999, the average balance of federal funds sold was
$350.4 million with a yield of 4.79%, compared to the average balance for the
three month period ended June 30, 1998 of $455.3 million with an average yield
of 5.55%. The $104.9 million reduction in the average balance, combined with the
76 basis points decrease in the average yield, resulted in total interest income
on federal funds sold of $4.2 million for 1999 compared to $6.3 million for
1998.
During the six-month period ended June 30, 1999, the average balance of federal
funds was $354.1 million with a yield of 4.78% compared to an average balance of
$414.4 million in 1998 with an average yield of 5.56%.
The federal funds portfolio is utilized to generate additional interest income
and liquidity as funds are waiting to be deployed into the loan and securities
portfolios. The reduction in the average balance for the three month and six
month periods of 1999 compared to 1998 are the result of increases in the loan
and securities portfolios during those time periods, funded through the
liquidation of federal funds sold.
The reduction in the yield on federal funds sold between 1998 and 1999 is the
result of changes made by the Federal Reserve Bank for the target rate on
overnight federal funds investments. During the later part of 1998 the Federal
Reserve Bank reduced its target rate by 75 basis points to 4.75%.
12
Funding Opportunities
TrustCo utilizes various funding sources to support its earning asset portfolio.
The vast majority of the Company's funding comes from traditional deposit
vehicles such as savings, interest bearing checking and time deposit accounts.
Also, TrustCo developed a Short-Term Investment Account which was introduced in
1995 exclusively for customers of the Trust Department.
During the quarter, total interest bearing liabilities were $2.1 billion for
both 1998 and 1999. The rate paid on total interest bearing liabilities was
4.33% for the second quarter of 1998, 70 basis points greater than the 3.63%
rate paid for 1999. Total interest expense for the second quarter decreased $3.8
million to $18.6 million for 1999 compared to $22.5 million for 1998.
Similar changes in interest bearing liabilities were noted for the six-month
period as was discussed for the quarter. Total interest bearing liabilities were
$2.1 billion for the six-month periods ended June 30, 1999 and 1998. The rate
paid on these balances decreased from 4.34% for 1998 to 3.70% for 1999.
During 1998 and continuing into 1999, TrustCo has reduced the rate paid on all
funding sources from 4.33% for the second quarter of 1998 to 3.63% for the
second quarter of 1999. These reductions in interest rates were the result of a
general fall in interest rates in the market place between those two dates. The
Federal Reserve Bank reduced the target federal funds rate by 75 basis points
during the same time period. From that reduction there were also declines in
bond yields, mortgage interest rates and deposit rates. TrustCo has actively
managed the pricing of deposit products in relation to investment opportunities
and marketing objectives. Interest rates on all deposit types have been
aggressively reduced, while at the same time the average balances have increased
from the period one year ago.
Net Interest Income
Taxable equivalent net interest income increased to $24.0 million for the second
quarter of 1999. The net interest spread also increased 30 basis points between
1998 and 1999 and the net interest margin increased by 28 basis points.
Similar increases were noted in taxable equivalent net interest income, net
interest spread and net interest margin for the six-month period ended June 30,
1999, compared to the same period in 1998. Net interest income for the first six
months of 1999 was $47.4 million, an increase of $2.7 million over the $44.7
million for the first six months of 1998. Net interest spread increased 17 basis
points to 3.54% and net interest margin increased 16 basis points to 4.01% for
the six-month period ended June 30, 1999, compared to the six-month period ended
June 30, 1998.
Nonperforming Assets
Nonperforming assets include nonperforming loans which are those loans in a
nonaccrual status, loans that have been restructured, and loans past due three
13
payments or more and still accruing interest. Also included in the total of
nonperforming assets are foreclosed real estate properties, which are
categorized as real estate owned.
Impaired loans are considered to be those commercial and commercial real estate
loans in a nonaccrual status, and loans restructured since January 1, 1995, when
the accounting standards required the identification, measurement and reporting
of impaired loans. The following will describe the nonperforming assets of
TrustCo as of June 30, 1999.
Nonperforming loans: Total nonperforming loans were $11.5 million at June 30,
1999, a decrease from the $12.4 million of nonperforming loans at December 31,
1998 and up from the $11.0 million at June 30, 1998. Nonaccrual loans were $5.4
million at June 30, 1999 down from the $7.1 million at December 31, 1998 and
down from the $6.4 million at June 30, 1998. Restructured loans were $4.1
million at June 30, 1999 compared to $3.8 million at December 31, 1998 and $3.8
million at June 30, 1998.
Of the $11.5 million of nonperforming loans at June 30, 1999, all but $1.9
million are residential real estate or retail consumer loans. In prior years the
vast majority of nonperforming loans were concentrated in the commercial and
commercial real estate portfolios. There has been a dramatic shifting of
nonperforming loans to the residential real estate and retail consumer loan
portfolio for several factors, including:
' The overall emphasis within TrustCo for residential real estate
originations,
' The relatively weak economic environment in the upstate New
York territory, and
' The reduction in real estate values in TrustCo's market area
that has occurred since the middle of the 1990's, thereby
causing a reduction in the collateral that supports the real
estate loans.
Consumer defaults and bankruptcies have increased dramatically over the last
several years and this has lead to an increase in defaults on loans. TrustCo
strives to identify borrowers that are experiencing financial difficulties and
to work aggressively with them to minimize losses or exposures.
Total impaired loans at June 30, 1999 of $5.2 million, consisted of restructured
retail loans. During the first six months of 1999, there have been $190 thousand
of commercial loan charge offs, $285 thousand of consumer loan charge offs and
$4.2 million of mortgage loan charge offs as compared with $575 thousand of
commercial loan charge offs, $440 thousand of consumer loan charge offs and $2.4
million of mortgage loan charge offs in the first six months of 1998. Recoveries
during the first six-month periods have been $2.9 million in 1999 and $1.7
million in 1998.
Real estate owned: Total real estate owned of $2.5 million at June 30, 1999
decreased by $2.7 million since year-end 1998. This decrease was due to the sale
of two commercial real estate properties and various residential properties
during 1999.
14
Allowance for loan losses: The balance of the allowance for loan losses is
maintained at a level that is, in management's judgment, representative of the
amount of the risk inherent in the loan portfolio.
At June 30, 1999, the allowance for loan losses was $55.7 million, which
represents a slight increase from the $54.4 million in the allowance at December
31, 1998. The allowance represents 4.20% of the loan portfolio as of June 30,
1999 compared to 4.11% at December 31, 1998. The provision charged to expense
was $1.5 million compared to $1.6 million for the second quarter of 1999
compared to 1998. For the six-month periods, the provision charged to expense
was $3.0 million for 1999 and $2.9 million for 1998.
In deciding on the adequacy of the allowance for loan losses, management reviews
the current nonperforming loan portfolio as well as loans that are past due and
not yet categorized as nonperforming for reporting purposes. Also, there are a
number of other factors that are taken into consideration, including:
' The magnitude and nature of the recent loan charge offs and the
movement of charge offs to the residential real estate loan
portfolio,
' The growth in the loan portfolio and the implication that
has in relation to the economic climate in the bank's business
territory,
' Changes in underwriting standards in the competitive environment
in which TrustCo operates,
' Significant growth in the level of losses associated with
bankruptcies and the time period needed to foreclose, secure
and dispose of collateral, and
' The relatively weak economic environment in the upstate New
York territory combined with declining real estate prices.
Consumer bankruptcies and defaults in general have risen significantly during
the 1990's. This trend appears to be continuing as a result of economic strife
and the relative ease of access by consumers to additional credit. Job growth in
the upstate New York area has been modest to declining and there continues to be
a shifting of higher paying jobs in manufacturing and government to lower paying
service jobs.
In light of these trends, management believes the allowance for loan losses is
reasonable in relation to the risk that is present in its current loan
portfolio.
Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's
earnings performance and strong capital position enable the Company to raise
funds easily in the marketplace and to secure new sources of funding. The
Company actively manages its
15
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, 1999 was $4.3
million, a decrease of $1.1 million from the comparable period in 1998. During
the 1999 period, the Company recorded net securities losses of $657 thousand
compared to $104 thousand of net gains for the comparable period in 1998.
Excluding these securities transactions, noninterest income decreased from $5.2
million in the second quarter of 1998 to $4.9 million in 1999. The decrease is
the result of a gain recognized on the sale of bank premises and equipment in
1998 for $540 thousand.
Similar results were also recognized for the six months of 1999 compared to
1998. Total noninterest income was $9.7 million for 1999 compared to $9.9
million for 1998. Excluding net securities transactions, the balances for 1999
and 1998 would have been $10.7 million and $9.8 million respectively. Most of
the year to date increase resulted from the gain on sales of bank premises and
equipment. As of June 30, 1998 the gain on sales of bank premises and equipment
was $587 thousand, while as of June 30, 1999 it was $1.2 million.
Noninterest Expenses
Total noninterest expense for the second quarter of 1999 was $11.4 million up
slightly from $11.3 million in the second quarter of 1998. For the six-months
ended June 30, 1999 and 1998, total noninterest expense was $23.6 million and
$22.8 million respectively.
Income Taxes
In the second quarter of 1999 and 1998, TrustCo recognized income tax expense of
$4.9 million and $5.2 million respectively. This resulted in an effective tax
rate of 34.0% for 1999 and 37.4% for 1998. For the six-months of 1999, total
income tax expense was $9.7 million compared to $10.1 million for 1998.
Capital Resources
Consistent with its long-term goal of operating a sound and profitable financial
organization, TrustCo strives to maintain strong capital ratios. New issues of
equity securities have not been required since traditionally, most of its
capital requirements are met through the capital retained in the Company (after
the dividends on the common stock).
Total shareholders' equity at June 30, 1999 was $176.5 million, a decrease of
$9.3 million from the year-end of 1998 balance of $185.8 million. The change in
the shareholders' equity between year-end 1998 and June 30, 1999 reflects the
net income retained by TrustCo offset by a $10.7 million decrease in the net
unrealized gain on
16
securities available for sale, and a $4.4 million increase in the amount of
Treasury stock.
TrustCo declared dividends of $0.55 per share during the first six-months of
1999 compared to $0.478 in 1998. These resulted in a dividend payout ratio of
78.62% in 1999 and 75.22% in 1998. The Company achieved the following capital
ratios as of June 30, 1999 and 1998:
June 30, Minimum Regulatory
1999 1998 Guidelines
Tier 1 risk adjusted
capital 13.08% 12.77 4.00
Total risk adjusted
capital 14.37 14.06 8.00
In addition, at June 30, 1999 and 1998, the consolidated equity to total assets
ratio (excluding the mark to market effect of securities available for sale) was
7.02% and 6.77%, respectively.
17
Year 2000 Update
General:
Management believes that TrustCo's company-wide Year 2000 project is proceeding
on schedule. The Year 2000 project is addressing the issue of computer software,
hardware, and embedded computer chips being unable to distinguish between the
years 1900 and 2000. TrustCo operates its principal financial accounting and
record keeping systems using software purchased from Alltel. Beginning in 1995,
TrustCo started a project to upgrade this software to the most current release
available and to work with Alltel to make the appropriate changes in order to be
ready to process Year 2000 transactions. A timetable was established for these
upgrades to occur which would culminate in the installation of a final set of
upgrades that would be Year 2000 ready. Since 1995, TrustCo has worked closely
with Alltel to ensure that they are making the appropriate remediation efforts
required to have their programs Year 2000 ready. While these activities were
ongoing, TrustCo directed its efforts to installing the upgrades and making the
other changes required to be positioned to handle the Year 2000 programs from
Alltel once they were completed.
In addition to the Alltel programs, there are a limited number of mainframe
application programs that were purchased from Kirchman Corporation. TrustCo
worked directly with the technical support staff at Kirchman to evaluate these
applications for any program changes required to accommodate Year 2000
processing requirements. In light of the program structure and the fact that
these programs already utilize the full century date in their processing, it is
not anticipated that there will be any difficulties with these programs
accepting Year 2000 data.
Throughout the organization, TrustCo utilizes other computer systems to process
various activities. Some of the functionality provided by these systems is of a
routine nature and is not critical to the operations of TrustCo. The critical
non-mainframe applications are the ATM application, which runs on an IBM AS400
system; Trust Accounting, which runs on an Alpha system from Digital Equipment
Corporation (DEC); and Payroll, which is a server-based application.
TrustCo has completed the installation of all upgrades and program changes
required by the software vendors to make all mission critical systems Year 2000
compliant. Testing has also been successfully completed with respect to these
systems to determine that they are functional using Year 2000 dates. The
schedule for the remainder of 1999 is to continue testing the systems, and to
install any new program changes identified by the software vendors. TrustCo will
also continue testing with third party exchange partners and vendors for the
remainder of 1999.
18
The Year 2000 project also addresses the increasing speculation regarding
short-and long-term unavailability of certain consumer goods, which may prompt
people to accumulate or hoard cash in quantities sufficient to meet their
personal needs for a period of time. The Year 2000 project has provisions
dealing with the need for additional cash in the branches later in 1999 and into
the year 2000. Arrangements have been made to obtain and transport additional
cash to the branches should the demand increase during those time periods.
Mainframe Operations:
Alltel Software: The vast majority of all transactions processed by TrustCo are
performed using Alltel software. Beginning in 1995, the Company inventoried all
of the applications that are processed on the mainframe and identified the
program release that TrustCo needed in order to be Year 2000 ready. A schedule
was developed and outside consulting resources were engaged to assist the
in-house programming staff to have all applications operating Year 2000 ready
programs upgraded by mid-1998. Completion of that schedule has been accomplished
and all Alltel Year 2000 ready programs have been installed.
Kirchman programs: TrustCo utilizes three programs purchased from Kirchman that
operate on the mainframe computer. The TrustCo in-house programming staff and
outside consultants have reviewed these programs and have concluded that the
programs are currently Year 2000 ready.
IBM operating system: The IBM operating system also required an upgrade to a new
version to ensure that it would be Year 2000 ready. This software has been
obtained and installed.
ATM application: A second system, identical to the system in place being used
for daily production, has been installed for ATM Year 2000 testing. The system
software for the platform has been upgraded to IBM's Year 2000 release. The
application software for both TrustCo and non-TrustCo ATM transactions has been
installed and placed into service.
Trust Accounting: A second system, identical to the system being used for daily
production, has been installed for Trust Department Year 2000 testing. The
operating system software has been upgraded to DEC's Year 2000 release. The
application software has been upgraded to the vendor's Year 2000 release.
Non-information Technology: In addition to computer systems utilized for
information technology, TrustCo is also dependent upon certain computerized
operations for such things as electrical services, heating and communications.
As part of the Year 2000 project, TrustCo has taken steps to evaluate the
19
magnitude of the computer dependency of these systems and the potential
disruption of services should these systems fail. Third-party vendors that
support these systems have been contacted and are being monitored by TrustCo in
relation to their Year 2000 implementation plan. Significant dependencies exist
with respect to utilities such as the electric companies. TrustCo has obtained
the Year 2000 project plans for these utilities and is monitoring the continued
compliance with their plans. The TrustCo contingency plan also provides for
generator back up power at key sites to allow for minimum functionality should
the primary electric providers be inoperative in Year 2000.
Personal Computers:
TrustCo reviewed all programs and departmental functions that utilize personal
computers. This inventory was then prioritized to identify critical programs
that needed to be Year 2000 ready. All of the critical programs have been
rewritten or new software has been installed so that they are year 2000 ready.
Testing:
To ensure that each of the systems that TrustCo operates will be Year 2000
ready, a testing plan has been developed. To assist in testing, TrustCo has
purchased redundant equipment for all of the hardware. This will facilitate
extended hours for testing and will ensure that none of the testing will in any
way affect production programs. As part of the test plan, TrustCo has identified
several dates that need to be tested. These include year-end 1999 and 2000 and
other critical dates during 1999 and 2000. Also various software and hardware
vendors have identified critical test dates for their systems which have been
incorporated into the overall test plan.
Detailed test scripts have been developed to determine that once the computer
clocks have been rolled forward to the appropriate test dates, specific
transactions and processes are performed to validate operational integrity. Data
aging software has also been obtained that will assist in identifying all of the
affected data fields and change them to the future date as required for the
test.
The test plan requires each application to be tested initially on a stand-alone
basis to ensure that it is operational in current date mode and will support
production. Once that test is completed, the plan calls for each application to
be tested in future date mode on a stand-alone basis. The test plan is designed
to help identify and isolate problems, if any exist, in future date mode
testing. The individual application testing will then lead to entity-wide
testing in future date mode to ensure that all of the applications function
properly in the future date environment.
TrustCo has substantially completed testing of the mission-critical systems in
20
future date mode. Test data and test scripts were completed for selected dates
and all output and processing was completed. Further testing will continue in
1999 as TrustCo interfaces with third-party vendors and service providers.
The detailed test plan covers all aspects of TrustCo's operations on the
mainframe, as well as all other mission-critical platforms.
Customer Evaluations:
TrustCo has completed a review of its significant customer relationships and
their dependency on computerized systems. In addition, significant new customer
relationships will also be subject to this evaluation. TrustCo has established
an ongoing assessment as part of the credit granting and review process.
Vendor Monitoring:
In addition to the main application software vendors, TrustCo has numerous
interfaces and data exchanges with third parties and vendors. Each of the
critical interfaces and vendors has been contacted to determine that their Year
2000 plans are adequate and will meet the timetables required by TrustCo. When
such plans are not provided or do not adequately address Year 2000 concerns,
alternate vendors or data exchange methods have been identified.
These interfaces and data exchanges with third parties and vendors occur
utilizing numerous types of programs and computer systems. Their Year 2000
projects require them to be compliant in accordance with timetables that are
acceptable to TrustCo and in accordance with guidelines established by bank
regulators. Due to the number of such interfaces and data exchanges with third
parties and vendors, there is a risk that some may not meet their schedules.
TrustCo is monitoring these activities and will take appropriate action should
the need arise.
Contingency Planning:
All of the mainframe application software is currently operational on software
that TrustCo's vendors have identified as being Year 2000 ready. Likewise, all
of the critical PC programs have been updated or rewritten to be Year 2000
ready. Substantially all future date testing has been completed and test results
provided assurance to management that the system will be functional in Year
2000. As problems are identified, the affected programming code is analyzed and
rewritten or replaced if needed.
The contingency plan that has been developed was designed to ensure that all the
testing and remediation efforts are completed in order to provide adequate time
for final corrections to software prior to Year 2000. Plans are also being
developed to identify and plan for unanticipated disruption of services after
Year
21
2000. These plans include timetables for moving operations to disaster
recovery sites, the availability of additional programming staff during the
critical time periods and back-up for program and data files. Initial plans have
been developed and will be updated continuously.
Cost:
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial statements.
Most of the costs associated with this project are for programming services paid
to third-party consultants. Internal costs have not been captured, since they
are relatively fixed costs and are a reallocation of existing resources to this
project. Costs paid to third-party vendors during the Year 2000 project were for
the following services:
' Installation of upgrades to software in order to utilize the
most recent version released by the vendor,
' Applying the Year 2000 code,
' Applying custom code that is utilized by TrustCo in its
operations, and,
' Providing production support to the Company as these
upgrades are being installed.
The cost of applying the Year 2000 remediation code to the upgraded programs is
not separately determinable from the other services that the third-party
consultants have been providing. The professional service cost for the services
noted above is estimated to be approximately $2 million for the Year 2000
project. Through June 30, 1999, approximately 80% of these costs have been
expensed.
Risk:
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party exchange partners and
vendors, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Year 2000 project
is expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material third-party data exchange partners and vendors. The
Company believes that, with the implementation of the modifications of all the
software and the monitoring of third-party data exchange partners and vendors,
the possibility of significant
22
interruptions of normal operations should be reduced.
The most likely worst case scenario is that certain interfaces and data
exchanges with third parties and vendors may not be fully functional at or after
the century date change. Because it is impossible to predict the nature of the
failure, the length of time that it takes to correct, and the extent of the
failure, it is not possible to reasonably estimate the impact on TrustCo.
Management's plan for testing with third parties and vendors will be completed
during 1999. This worst case scenario could increase the overall cost of the
Year 2000 project; however, management believes that this scenario, though
possible, has only a minor likelihood of occurring.
Readers are cautioned that forward-looking statements contained in the Year 2000
update should be read in conjunction with the Company's disclosures under the
heading "Forward-Looking Statements" dealing with cautionary statements for the
purpose of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
23
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields on
interest earning assets and annualized rates on interest bearing libilities of the
Registrant and the Bank (adjusted for tax equivalency) for each of the reported periods.
Nonaccrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized appreciation, net of tax,
in the available for sale portfolio of $15.1 million in 1999 and $14.7 million in 1998.
The subtotals contained in the following table are the arithmetic totals of the items
contained in that category.
Second Quarter Second Quarter
1999 1998
___________________________ ___________________________ ____________________________
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans.....................$ 187,979 $ 4,144 8.82% $ 191,178 $ 4,521 9.47% (377) (75) (302)
Residential mortgage loans............ 971,082 18,923 7.79% 926,958 18,703 8.07% 220 3,109 (2,889)
Home equity lines of credit .......... 142,432 2,735 7.70% 161,854 3,817 9.46% (1,082) (425) (657)
Installment loans..................... 22,793 714 12.57% 26,519 840 12.70% (126) (117) (9)
---------- -------- ---------- -------- ------- ----- -----
Loans, net of unearned income.........1,324,286 26,516 8.01% 1,306,509 27,881 8.54% (1,365) 2,492 (3,857)
Securities available for sale:
U.S. Treasuries and agencies......... 148,301 2,690 7.25% 204,768 3,837 7.50% (1,147) (1,027) (120)
Mortgage-backed securities........... 255,894 4,244 6.63% 174,824 2,963 6.78% 1,281 1,713 (432)
States and political subdivisions.... 135,972 2,688 7.91% 111,260 2,255 8.11% 433 791 (358)
Other ............................... 141,887 2,276 6.42% 88,805 1,424 6.41% 852 851 1
---------- -------- ---------- -------- ------- ----- -----
Total securities available for sale 682,054 11,898 6.98% 579,657 10,479 7.23% 1,419 2,328 (909)
Federal funds sold.................... 350,374 4,182 4.79% 455,264 6,296 5.55% (2,114) (1,326) (788)
Other short-term funds................ ----- ---- ---- ----- ---- ---- --- --- ---
---------- -------- ---------- -------- ------- ----- -----
Total Interest earning assets.......2,356,714 42,596 7.23% 2,341,430 44,656 7.63% (2,060) 3,494 (5,554)
Allowance for loan losses............. (56,440) -------- (55,873) -------- ------- ----- -----
Cash and non-interest earning assets.. 132,870 153,269
---------- ----------
Total assets.......................$2,433,144 $2,438,826
========== ==========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking.........$ 263,428 701 1.07%$ 243,613 $ 937 1.54% (236) 435 (671)
Money market accounts.............. 60,754 413 2.72% 56,799 415 2.93% (2) 115 (117)
Savings.............................. 668,767 4,507 2.70% 658,755 5,228 3.18% (721) 513 (1,234)
Time deposits........................ 914,166 11,511 5.05% 962,964 13,974 5.82% (2,463) (682) (1,781)
---------- -------- ---------- -------- ------- ----- -----
Total time deposits.................1,907,115 17,132 3.60% 1,922,131 20,554 4.29% (3,422) 381 (3,803)
Short-term borrowings................. 151,219 1,481 3.93% 156,401 1,904 4.88% (423) (61) (362)
---------- -------- ---------- -------- ------- ----- -----
Total interest bearing liabilities..2,058,334 18,613 3.63% 2,078,532 22,458 4.33% (3,845) 320 (4,165)
Demand deposits....................... 150,039 -------- 137,537 -------- ------- ----- -----
Other liabilities..................... 40,311 47,155
Shareholders' equity.................. 184,460 175,602
---------- ----------
Total liab. & shareholders' equity.$2,433,144 $ 2,438,826
========== ==========
Net interest income................... 23,983 22,198 1,785 3,174 (1,389)
-------- -------- ------- ----- -----
Net interest spread................... 3.60% 3.30%
Net interest margin (net interest
income to total interest earning
assets)............................ 4.07% 3.79%
Tax equivalent adjustment 998 842
-------- --------
Net interest income per book....... $ 22,985 $ 21,356
======== ========
-24-
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields on
interest earning assets and annualized rates on interest bearing libilities of the
Registrant and the Bank (adjusted for tax equivalency) for each of the reported periods.
Nonaccrual loans are included in loans for this analysis. The average balances of sec-
urities available for sale is calculated using amortized costs for these securities.
Included in the balance of shareholders' equity is unrealized appreciation, net of tax,
in the available for sale portfolio of $16.6 million in 1999 and $14.9 million in 1998.
The subtotals contained in the following table are the arithmetic totals of the items
contained in that category.
Six Months Six Months
1999 1998
___________________________ ___________________________ ____________________________
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Commercial loans.....................$ 186,556 $ 8,289 8.90% $ 190,459 $ 9,067 9.54% (778) (183) (595)
Residential mortgage loans............ 967,417 37,842 7.82% 920,645 37,329 8.11% 513 3,412 (2,899)
Home equity lines of credit .......... 144,111 5,518 7.72% 165,808 7,761 9.44% (2,243) (938) (1,305)
Installment loans..................... 23,578 1,478 12.64% 27,017 1,719 12.83% (241) (216) (25)
---------- -------- ---------- -------- ------- ----- -----
Loans, net of unearned income.........1,321,662 53,127 8.05% 1,303,929 55,876 8.59% (2,749) 2,075 (4,824)
Securities available for sale:
U.S. Treasuries and agencies......... 154,131 5,653 7.33% 235,469 8,928 7.58% (3,275) (2,991) (284)
Mortgage-backed securities........... 252,433 8,323 6.59% 171,824 5,872 6.84% 2,451 3,051 (600)
States and political subdivisions.... 133,850 5,299 7.92% 110,377 4,485 8.13% 814 1,138 (324)
Other ............................... 139,780 4,401 6.30% 75,039 2,352 6.28% 2,049 2,039 10
---------- -------- ---------- -------- ------- ----- -----
Total securities available for sale 680,194 23,676 6.96% 592,709 21,637 7.30% 2,039 3,237 (1,198)
Federal funds sold.................... 354,122 8,398 4.78% 414,431 11,418 5.56% (3,020) (1,543) (1,477)
Other short-term funds................ 828 21 5.16% ----- ---- ---- 21 21 ---
---------- -------- ---------- -------- ------- ----- -----
Total Interest earning assets.......2,356,806 85,222 7.24% 2,311,069 88,931 7.71% (3,709) 3,790 (7,499)
Allowance for loan losses............. (56,358) -------- (55,214) -------- ------- ----- -----
Cash and non-interest earning assets.. 137,526 153,054
---------- ----------
Total assets.......................$2,437,974 $2,408,909
========== ==========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking..........$ 260,936 1,377 1.06%$ 241,487 $ 1,845 1.54% (468) 379 (847)
Money market accounts................ 60,032 812 2.73% 57,314 832 2.93% (20) 86 (106)
Savings.............................. 664,112 8,904 2.70% 655,219 10,343 3.18% (1,439) 400 (1,839)
Time deposits........................ 929,649 23,830 5.17% 958,667 27,722 5.83% (3,892) (819) (3,073)
---------- -------- ---------- -------- ------- ----- -----
Total time deposits.................1,914,729 34,923 3.68% 1,912,687 40,742 4.30% (5,819) 46 (5,865)
Short-term borrowings................. 149,073 2,929 3.96% 143,686 3,471 4.87% (542) 346 (888)
---------- -------- ---------- -------- ------- ----- -----
Total interest bearing liabilities..2,063,802 37,852 3.70% 2,056,373 44,213 4.34% (6,361) 392 (6,753)
Demand deposits....................... 149,034 -------- 132,836 -------- ------- ----- -----
Other liabilities..................... 39,632 43,937
Shareholders' equity.................. 185,506 175,763
---------- ---------
Total liab. & shareholders' equity.$2,437,974 $ 2,408,909
========== ==========
Net interest income................... 47,370 44,718 2,652 3,398 (746)
-------- -------- ------- ----- -----
Net interest spread................... 3.54% 3.37%
Net interest margin (net interest
income to total interest earning
assets)............................ 4.01% 3.85%
Tax equivalent adjustment 1,958 1,714
-------- --------
Net interest income per book....... $ 45,412 $ 43,004
======== ========
-25-
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Company's interest rate risk
position since December 31, 1998. Other types of market risk, such as
foreign exchange rate risk and commodity price risk do not arise in the
normal course of the Company's business activities.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
Date: July 30, 1999 By: /s/ Robert A. McCormick
---------------------------
Robert A. McCormick
President and
Chief Executive Officer
Date: July 30, 1999 By: /s/ Robert T. Cushing
---------------------------
Robert T. Cushing
Vice President and Chief
Financial Officer
27
Exhibits Index
Reg S-K
Exhibit No. Description Page No.
22 Submission of Matters to Vote of Security 29
Holders - Annual Meeting
28
Exhibit 22
Item 4. Submission of Matters to Vote of Security Holders - Annual Meeting. At
the annual meeting held May 17, 1999, shareholders of the Company were asked to
consider the Company's nominees for directors and to elect four (4) directors to
serve for a term of three (3) years. The Company's nominees for director were:
Lionel O. Barthold, Richard J. Murray, Jr., William D. Powers, and William F.
Terry.
1. The results of shareholder voting are as follows:
Director For Withheld Abstain
Lionel O. Barthold 23,730,571 713,185 N/A
Richard J. Murray, Jr. 23,746,732 697,024 N/A
William D. Powers 23,699,817 743,940 N/A
William F. Terry 23,648,564 795,193 N/A
Directors continuing in office are Barton A. Andreoli, M. Norman
Brickman, Anthony J. Marinello, MD, PhD, Robert A. McCormick, Nancy A.
McNamara, John S. Morris, PhD, James H. Murphy, DDS, Kenneth C. Petersen,
and William J. Purdy.
2. Shareholders of the Company were asked to adopt an amendment to the
Amended and Restated Certificate of Incorporation of TrustCo to
increase the authorized shares of Common Stock from 50,000,000 to
100,000,000. The results of shareholder voting are as follows:
For Withheld Abstain
23,173,235 1,120,229 150,292
3. Shareholders of the Company were asked to approve a proposal to adopt
an amendment to the 1995 TrustCo Bank Corp NY Stock Option Plan to
increase the authorized number of shares of Common Stock issuable
under the Plan in addition to several administrative changes. The results
of shareholder voting are as follows:
For Withheld Abstain
21,204,202 2,982,929 256,625
4. Shareholders of the Company were asked to consider a proposal to ratify
the appointment by Trustco's Board of Directors of KPMG LLP as the
independent certified public accountants of TrustCo for the fiscal
year ending December 31, 1999. The results of shareholder voting are as
follows:
For Withheld Abstain
24,082,638 143,398 217,720
29
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
TRUSTCO BANK CORP N Y
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
WE, THE UNDERSIGNED, Robert A. McCormick and William F. Terry, being
respectively, the President and Chief Executive Officer and the Secretary of
TrustCo Bank Corp N Y (the "Corporation"), certify:
1. The name of the Corporation is TrustCo Bank Corp N Y.
2. The certificate of Incorporation was filed by the Department of State
on he twenty-eighth day of October, 1981. A restated Certificate
of Incorporation was filed by the Department of State on the fifteenth
day of July, 1988 and an Amendment to the Certificate of Incorporation
was filed by the Department of State on the twenty-ninth day of
August, 1991. An additional Restated Certificate of Incorporation
was filed by the Department of State on the sixth day of August, 1993.
Additional amendments to the Certificate of Incorporation were filed
by the Department of State on June 5, 1996, June 5, 1997 and October
2, 1997.
3. a. The Certificate of Incorporation is amended to increase the
number of authorized shares of common stock of the par value
of $1 per share from 50,000,000 shares to 100,000,000 shares.
b. To effect the foregoing, Section 4.1 of Article IV of the
Amended and Restated Certificate of Incorporation is
hereby stricken out in its entirety, and the following new
Article IV is substituted in lieu thereof:
4.1 The total number of shares of Common Stock which the
Corporation shall have authority to issue is 100,000,000
shares of the par value of $1 per share.
The total number of shares of Preferred Stock which
the Corporation shall have authority to issue is
500,000 shares of the par value of $10 per share.
The Board of Directors of the Corporation shall have the
authority to provide for the issuance of the Preferred Stock
on one or more series, with such voting powers, full or
limited, but not to exceed one vote per share, or without
voting powers, and with such designations, conversion rights,
redemption prices, dividend rates and similar matters,
including preferences over shares of Common Stock or
other series of Preferred Stock as to dividends or
distributions of assets and
1
relative participation, optional or other special rights,
and qualifications, limitations or restrictions thereof, as
shall be set forth in resolutions providing for the issuance
thereof that may be adopted by the Board of Directors.
4. The amendment to the Certificate of Incorporation does not
reduce stated capital.
5. amendment to the Certificate of Incorporation was authorized
by a majority vote of the Board of Directors, followed by vote
of the holders of a majority of the Corporation's outstanding
shares entitled to vote thereon, at a meeting of shareholders.
IN WITNESS WHEREOF, we have signed this Certificate of
Amendment on the 18th day of May, 1999.
/s/ Robert A. McCormick
____________________________________
Robert A. McCormick
President and Chief Executive Officer
/s/ William F. Terry
____________________________________
William F. Terry
Secretary